Short Call: Of D-Street dilemma, flight of foreign funds, and bond headwinds; Mamaearth IPO in focus

An intensifying bond rout is piling pressure on the global economy and creating a tremendously dangerous outlook for equities.

“People always want to believe that this time is different, that there’s something new under the sun, and that through their own ingenuity they can wish away risk.” - Seth Klarman

Bulls made a strong comeback on Friday, but expect some choppiness in the short term. Sustained selling from foreign funds is causing some uneasiness among the big boys of Dalal Street. Especially as it is coinciding with a  profit-booking spree by HNIs.

Chennai Petroleum

The stock has been under pressure despite a strong second-quarter showing. One reason could be that globally refining margins have begun to come off. Also, current quarter earnings are likely to be lower because of a scheduled plant shutdown for maintenance. Bulls are making a tactical retreat for now.

Mamaearth IPO

The pendulum seems to have swung to the other extreme for new-age business IPOs looking at the backlash against Mamaearth on social media. So much so that fund managers looking to invest in the IPO run the risk of getting trolled. But the silverlining to the cloud is that expectations are so low that anything will be an improvement hereon.

SBI Cards

Goldman Sachs has rated the stock a 'sell', citing worrisome commentary on overall portfolio because of the stress building up in the unsecured loans segment.

Tremendously dangerous

An intensifying bond rout is piling pressure on the global economy and creating a “tremendously dangerous” outlook for equities, according to David Neuhauser, chief investment officer of Livermore Partners hedge fund, tells CNBC. His remarks come even as investors like Bill Ackman of Pershing Square and Bill Gross of PIMCO have softened their bearish view on US treasury bonds. Neuhauser’s thesis is that high interest rates will dent consumer demand, hit corporates by way of higher refinancing costs and ultimately lead to a downtrend in the economy, hurting the stock market eventually.

Still hopeful

Shares of the iShares 20+ Year Treasury Bond ETF are near a 16-year low and have lost more than half their value from their 2020 peak, but investors are piling in, reports WSJ. Why? The buyers appear to be betting that yields are near their peak and set to fall. If yields begin to fall, investors in long-dated bonds will benefit from price appreciation as longer-duration bonds are the most sensitive to interest rate moves. They will appreciate faster if rates fall and decline faster if they move higher.

US banks NPAs

Many mid-sized financial institutions in US are reporting a rise in non-performing loans in the third quarter, reports Yahoo Finance. The banks also disclosed mounting costs from unpaid debts written off as losses. Out of the 18 regional banks analysed by Yahoo Finance with assets ranging from $50 billion to $250 billion, 15 reported jumps in nonperforming loans when compared to the same year-ago period. The average rise was 80 percent year-on-year, and 8 percent higher quarter-on-quarter.

Uranium bets

Several hedge fund managers have started ratcheting up their exposure to uranium stocks, as they bet on significant price gains, reports Bloomberg.

“Nuclear may become the key driving force in the decades-long energy transition. New demand in Europe, Asia and Africa for nuclear reactors and old reactor life-time extensions aligned to net-zero aspirations from governments — and the continued build-out of China’s nuclear fleet — have driven spot uranium prices 125 percent higher since 2020.”