Short Call | Promoters play order-win game; TFCI, Hindalco, KFin, JSPL in focus

There is only so much that earnings can be grown through margin expansion.

Midcap stocks took a beating on Wednesday, but most people in the market are treating it as yet another ‘buy-on-dips’ argument. Strong domestic liquidity is still the most powerful argument in favour of stocks going up. As Rajiv Jain of GQG Investment Partners said in an interview to CNBC-TV18, a 10-15 percent correction in midcaps, when it happens, should be seen as a “pause that refreshes”.

At the same time, there is need for caution as well. Vinit Sambre of DSP Mutual Fund points out that topline sales growth has been slowing for the last three quarters. There is only so much that earnings can be grown through margin expansion. If sales don’t pick, there could be an earnings slowdown shortly, Sambre has warned.

And, then there is the other dangerous trend of companies chasing unprofitable orders, as highlighted by value investor Shyam Sekhar. Because the market cheers order wins and drives up the stock price in the short term, managements play the market smartly by bidding for orders which they know won't ever make a profit. “They will raise equity, place promoter shares and make profit from markets their primary source of income,” he tweets.

Investor Aditya Kumar Halwasiya has picked up 13 percent stake in the company.

Bull view: Tourism as an industry is booming since the post-pandemic period, and is expected to grow further. Even though the stock has run up, valuations are still cheap.

Bear view: The stock has low liquidity. This may make it unattractive to

institutional investors. Low return on equity of 10 percent in the last three years.

Brokerage firm Motilal Oswal has rated the stock a buy.

Bull view: Robust steel demand to drive earnings. The company has actively been increasing capacity which could increase its share in the market.

Bear view: There are concerns over delays in commissioning of the new capacity. This could impact on margins and profitability in the short term.

Jefferies has rated the stock a buy.

Bull view: Opportunities for expansion into newer markets; strong cash flow puts it in a position to make good acquisitions. The boom in the financial services sector is likely to continue for a while.

Bear view: The stock has more than doubled in less than a year, much of the positives may already be priced in. Stock over owned by domestic institutions which already have close to 25 percent stake in the company.

CLSA has predicted Hero’s retail two wheeler volumes to decline by 3.6 percent  in February.

Bull view: Hero Motocorp is expected to add 100 premium outlets and improve its existing 400 premium outlets in the next six months to compete better in the premium segment.

Bear view: CLSA says competition is increasing in the two wheeler electric and premium segments.

Market unimpressed with the proposal to sell a part of stake in subsidiary Novelis through an IPO in the US market.

Bull view: Manufacturing companies in the US are getting a good valuation at present. If Novelis trades at attractive valuations, then it can raise more money later and reduce debt. This in turn will lower Hindalco’s group debt levels too.

Bear view: Cost and time overrun at the Bay Minette project has led to price target downgrades by analysts.