Short Call | PVR Inox, Avenue Supermarts in focus, bears target IDFC First, US Inc readies for recession

A few analysts may have turned bullish on stocks of asset management companies of late, but it still appears to be a long road to re-rating.

“Be sceptical of the popular reasoning behind any spectacular move in the stock market - but don't be too sure this reasoning is wrong.” - Benjamin Graham

This is a bull market, alright, but you get a feeling of caution, more than euphoria. Zerodha founder Nithin Kamth has a valid point when he says that it doesn't feel like a bull run because retail activity isn't picking up. There may not be a scramble for fixed-income instruments like was the case a few months back, but brokers say equities are getting a tough competition from bank FDs because of the attractive interest rates on offer, and also because the current rally has been selective.

"Active clients on the NSE, Google and social media trends are way below all-time highs. Unlikely that activity will pick up given the higher interest rate environment," Kamath wrote on Twitter.

PVR Inox

Bulls could be in a spot of bother as reviews for the Ramayan-adaptation Adipurush have been far from flattering. Adipurush made Rs 140 crore globally on its first day, but that has to be seen in the context of the Rs 600 crore that went into the making of the movie. Bulls had piled onto the stock with high hopes but It now looks unlikely the movie will turn out to be a money spinner. F&O data shows unwinding of long positions, but not so much creation of short positions. The jump in calls of Rs 1,500 and puts of Rs 1,400 could indicate that the stock may slip into a narrow trading range near term.

IDFC First Bank

The stock has had a stellar run since reporting record quarterly profits late April, rising around 30 percent to an all-time high of Rs 82.40. It has been the best performing stock in the banking sector in 2023 by a mile, as concerns of a net interest margin squeeze and easing credit growth have seen other bank stocks struggle in the last couple of months. But bears now seem to be sensing an opportunity in the IDFC First stock following the swift run up.

Open positions in the NSE’s Securities Lending and Borrowing window have risen sharply to over 40 million shares. No major build-up in stock futures, which in a way protects the stock from sharp a downturn due to unwinding of long positions, but at the same time, lot of call options in the Rs 82 strike indicates that bulls have their task cut. Call options are written by traders who are betting that the stock may not rise in the near term.

Avenue Supermarts

Strong rally in the stock on Friday, supported by heavy volumes. The stock had sold off last month after the retail chain’s fourth quarter numbers fell short of analyst estimates. The stock has had an indifferent run since peaking in October 2021 as high valuations kept investors wary of over paying. You may get an excellent bargain at D-Mart stores, but not for its stock on Dalal Street, is what the market seems to be saying. The latest chatter in the stock is that it may soon finally make its way into the NSE’s hallowed F&O list, which could then make it eligible for being included in the Nifty 50. Avenue Supermarts’ non-inclusion in the Nifty has been a source of wonderment for most active fund managers, all the more so when some less deserving stocks have managed to have find a place.

Manappuram Finance

The stock gained nearly 5 percent on Friday, and derivatives data points to continued short covering of positions. The stock has regained favour with the market over the last couple of months as investors are betting that the worst of margin pressure in the gold loan business may be over.

HDFC Asset Management

A few analysts may have turned bullish on stocks of asset management companies of late, but it still appears to be a long road to re-rating. HDFC AMC shares have rallied around 20 percent from their lows in late march, but are facing resistance around the Rs 2,000 mark. Looks like the market is yet to discount the pressure on earnings likely to result from the changes in rules relating to the Total Expense Ratio. Futures show continued build up of short positions, and there has been a big jump in call writing at Rs 2,000 strike.

No lay offs, but…

The labour market in the US may be strong, things are not looking too good for the US economy if the number of hours worked is any indication.

From the Wall Street Journal

“The hiring boom obscures what looks like a contradictory economic trend: Employees are working fewer hours.  The average number of hours worked a week by private-sector employees declined to 34.3 in May, below the 2019 average and down from a peak of 35 hours in January 2021, according to the Labor Department.”

According to the report, with growth slowing, some employers might be responding to a possibility of recession by cutting hours, instead of laying off staff.