Short Call | Metals bask in the hopes of China's revival; M&M, Avenue Supermarts in focus

Stock market radar

While the Indian equity market is teetering with concerns over outflows towards China triggered by the country's stimulus to revive its battered property sector, there's one group that’s quietly celebrating – the metal sector! After being dragged down by sluggish global demand, China's lacklustre growth, and tightening monetary policy, metal companies are finally seeing a glimmer of hope.

China's big push to boost its property sector has sparked excitement for metal companies, especially with expectations of renewed demand from the world's largest metal importer. Nomura shares this optimism, highlighting that an uptick in excavator sales, easing monetary policies, and the Chinese government’s efforts to prop up the property market could boost demand for Indian metal manufacturers, particularly steel giants.

But let’s not forget – this isn’t China’s first rodeo with trying to rescue its property sector, and previous attempts haven’t exactly knocked it out of the park. So while the latest measures spark optimism, there’s still a lingering question mark. That said, even if China's efforts fall short, there are plenty of other tailwinds for metal manufacturers.

Nomura points to improving domestic demand driven by the auto and construction sectors, monetary policy shifts, recent capacity expansions, the potential return of anti-dumping duties, and favourable coking coal prices as hints towards a bright future for Indian metal majors. Now, while metal companies are more likely than not, abound on a turnaround journey, it may be a tad early to say whether China's property sector revival will be an active participant or simply a void in their quest for a comeback.

Mahindra and Mahindra (Rs 3,019, -3.5%)

Shares slipped even as Investec and Morgan Stanley gave bullish calls.

Bull Case: The company reported 1.76 lakh bookings for the Thar ROXX in just 60 minutes, marking the highest first-day bookings for any model in the company's history. Thar ROXX could push the overall Thar franchise to 8,000–10,000 units per month. It also suggested that the SUV's performance could help M&M consolidate its position as the third-largest player in India's passenger vehicle market.

Bear Case: A slowdown in passenger vehicle sales is a cause of concern for the OEM, and erratic monsoons could also pose significant risk to the company's farm equipment and tractor business. Tractors contributed around 25 percent of the company's total revenue in Q1.

Avenue Supermarts (Rs 4,725, -4.4%)

Stock fell after the company shared weaker-than-expected revenue growth in Q2 business update.

Bull Case: DMart's operational metrics continue to improve, despite slower revenue growth. The company's expansion strategy, aiming for 45 new stores this fiscal year, positions it well for long-term market dominance.

Bear Case: Goldman Sachs and Citi express concern over DMart's 14.2% YoY revenue growth in Q2 falling short of expectations. Risks from a challenging product mix, quick commerce competition, and cautious store expansions prompt a bearish outlook, highlighting potential valuation pressures.

(With inputs from Veer and Harshita)