Short Call | Markets tired, bulls look complacent; REC struggles, Havells gets a leg up, Voda in focus

Foreign funds are aggressively buying Indian debt.

The market is showing signs of fatigue. Promoters continue to sell stocks, foreign funds continue to dump shares, and local funds continue to be the steady buyers. Stocks with dubious fundamentals are getting a second chance as the market is starved for good ideas. New entrants jump into to buy at every correction.

Some macro cheer as well. Foreign funds are aggressively buying Indian debt which, in turn, is providing a cushion to the rupee. Also, China’s oil demand growth this year could be half of pre-Covid levels of 2019, according to Eurasia Group, as key sectors like auto and property grapple with a slowdown.

Markets in Japan and the UK are booming despite their economies being in doldrums. And, with the mood in the US market upbeat, the only risk investors see right now is of selling too early. For the moment, it looks as if nothing can go wrong. This is also the time when a sense of complacency sets in. And there are enough signs of it on Dalal Street.

The stock was among the prominent losers in a rising market on Tuesday. It has now shed close to 10 percent so far this month.

Bull argument: A good play on the rising investments in the power utility sector.

Bear argument: The stock may consolidate after a spectacular rise over the last year. Analysts say the stock is now looking expensive at around 1.5

times forward price to book. The rally from December onwards appear to have  been driven mainly by retail investors. Institutional appetite for the stock appears to  be waning. In December and January, mutual funds did not add much to their existing holdings in the stock.

Goldman Sachs upgraded its rating on the stock to ‘buy’ from ‘neutral’.

Bull argument: The near-term earnings outlook remains robust due to seasonal factors and a better product mix. Input prices have stabilized, which is expected to keep margins stable. The summer season is likely to drive demand.

Bear argument: Consumer sentiment remains weak, especially in the near term. The stock is not cheap at 77 times trailing earnings, considering that quarterly earnings have stayed within a narrow band for the last eight quarters. Local fund managers do not appear upbeat on the stock at the moment.

Shares of Cello World extended gains after brokerage Motilal Oswal initiated coverage on the stock with a 'buy' call. The stock has now risen close to 10 percent in the last three sessions.

Bull argument: The well-known brand name is expected to grow faster than peers, has a range of products across price points, strong and efficient distribution, and juicy gross profit margins. The counter has shown a steady uptick in revenues and net profit over the last four quarters.

Bear argument: Promoters will have to pare 3 percent stake to comply with the Sebi rule on minimum public shareholding. The stock is fairly valued at 70 times trailing 12-month earnings.

The stock jumped following a rating upgrade by broking firm UBS as well as a price target upgrade to Rs 4700 from Rs 4000 earlier.

Bull argument: The company’s revenue is expected to be boosted by large deal wins and margin growth to lead among its peers.

Bear argument: IT stocks have rallied recently on expectations of earlier Fed interest rate cut. However, strong US economy and inflation is likely to push rate cuts further, making recovery in discretionary spending a challenge. Also, IT hiring has not picked up in a big way yet, indicating that the industry in general remains cautious in uts outlook.

The board approved raising up to Rs 45,000 crore through equity and debt, the company said on February 27 after market hours.

Bull argument: The fundraising will enable Vodafone Idea to invest towards expansion of 4G coverage, 5G network rollout and capacity expansion enabling it to improve its competitive positioning and claw back some of the market share that it has lost.

Bear argument: Given Airtel and Jio’s domination, it will be an uphill task for Vodafone to regain market share in a meaningful way. Since a good part of the funds will be raised through fresh issue of equity, the supply of shares in the system will increase.