Short Call | Momentum players seek new believers, Adani Ent, Phoenix Malls, ONGC in focus

Stocks have just gone on from being very expensive to just expensive.

“Unprecedented events occur with some regularity, so be prepared.” - Seth Klarman

Stocks bounced back on Tuesday, but the recovery did not appear to be a convincing one. Brokers said institutional interest was low. The sector rotation game continues, as operators quickly shift from one set of stocks to another. But not all participants are able to exit in time. And it is mostly the retail investors who are left holding the bag.

As one fund manager told Short Call: “Even if a lot of stocks have corrected sharply over the last couple of weeks, valuations in most cases are not attractive enough for fundamental investors.” In other words, to use a cliched market phrase, stocks have just gone on from being very expensive to just expensive. That means momentum investors need to find a fresh set of believers.

With the latest US consumer inflation reading coming in hotter than expected and hopes of an early cut in interest rates getting dashed, the mood in global markets is likely to be edgy for the next few sessions. That in turn could trigger some more selling in the short term.

Adani Enterprises (Rs 3,180, +0.3%)

Moody’s Investor Group has changed the outlook on debt papers of four Adani Group companies to stable from negative. Jefferies has initiated

coverage on the flagship entity with 19 percent upside.

Bull argument: With the Supreme Court ruling in favour of the group, near-term headwinds seem to be out of the picture. Fundraising talks in full swing. Stock yet to scale back to all-time high, which was hit ahead of Hindenburg report.

Bear argument: The Street is betting big on timely execution of the Navi Mumbai airport, green hydrogen plants, and so on. Any delay in these projects could change sentiment for the stock. Net debt/EBITDA high at 3 times.

Phoenix Mills (Rs 2,544, -4.18%)

The stock fell despite reporting a 58.4 percent on-year growth in consolidated net profit at Rs 279.4 crore in the December quarter.

Bull argument: Malls consumption grew 24 percent YoY, management expects it to record a 15 percent CAGR in the next five years.

Bear argument: Low ROE and ROCE, DIIs have reduced stake in the company. The company is aggressively deploying capex to fuel expansion, which might increase debt levels in high interest rate environments.

ONGC (Rs 259.80, 0.74%)

The third-quarter numbers were underwhelming.

Bull argument: The management is confident of an increase in volumes and in gas prices. Analysts see limited downside to the stock as valuations reasonable.

Bear argument: Analysts have revised estimates on disappointing results – volatility in earnings segment continues to remain a concern.

With inputs from Shailaja, Ananthu and Anishaa