Short Call | Perils of believing in consensus view, tractors Achilles heel for M&M, Oil India, Axis, Muthoot in focus

The consensus view is that the market is unlikely to rally much ahead of the elections.

“Be careful of leverage. It can go against you.” - Walter Schloss

Things in global markets appear to be improving, going purely by the strength in equity indices. This is despite Japan and the UK slipping into a technical recession. In the US, investors appear to have made peace with interest rates staying higher for longer. Instead, investors are focussing on other indicators like jobs data, which continue to show strength in the underlying economy despite the recent wave of layoffs.

Back home, bulls are trading cautiously. Veteran investors are booking profits in overvalued names and ploughing some of that money back into their holdings they are comfortable with. The consensus view is that the market is unlikely to rally much ahead of the elections, and most likely trade sideways. But one defining trend after Covid has been that consensus views have consistently been proven wrong.

So much that on many days, seasoned investors are honest enough to admit to Short Call that they no longer understand this market.

Mahindra & Mahindra (Rs 1769.85, +6.85%)

Bull argument: Strong SUV sales will support overall growth as premiumisation trend is here to stay. The company has 5-6 electric SUV launches planned from 2024-end onwards.

Bear argument: Tractor sales not too inspiring. El Nino could spell more trouble for this segment. Mutual fund stake has been decreasing. Company raised eyebrows with investment in RBL Bank last year, any such further investments, without proper clarification to investors, could put pressure on the stock.

Gujarat Gas (Rs 580.85, +3.77)

The stock recovered after taking a knock following disappointing third quarter earnings. Net profit slumped 40 percent year-on-year.

Bull argument: Volume grew 26 percent YoY. Volume recovery expected to

sustain supported by CNG growth.

Bear argument: Margins declined in the quarter as company took price cuts to compete with propane, which many of the company’s industrial customers are using as an alternative.

Muthoot Finance (Rs 1,345.5, -2.45%)

The stock tumbled after net interest margin for the December quarter fell short of analyst estimates.

Bull argument: Muthoot opened 122 branches during 2QFY23-4QFY23. These branches may scale up augmenting growth next fiscal, as it takes 1-2 years for new branches to ramp up disbursements.

Bear argument: The company has Paytm as a service partner for the repayment of loans.

Axis Bank (Rs 1073, -2.2%)

BJP leader Subramanian Swamy moved the Delhi High Court, alleging Axis Bank unfairly benefitted from transactions in shares of Max Life Insurance.

Bull argument: Axis Bank has guided a higher than industry credit and deposit growth by 400-600 basis points.

Bear argument: In the coming quarters cash deposit ratio will constrain credit growth, while continued re-pricing of deposits will exert pressure on margins, say analysts. High provisions due to AIFs.

Oil India (Rs 560.60, 12.4%)

The stock jumped despite a decline in earnings for the December quarter.

Bull argument: Company has given a guidance of 8 percent CAGR in FY23-26E for oil and 16% CAGR for gas production in FY23-26E; Analysts believe that with the underdeveloped oil & gas reserves, Oil India has opportunities to expand further.

Bear argument: Oil and gas realisations have declined in the December quarter; analysts estimate there could be some reserve shortage.