Short Call | Q4 key to party in small, midcaps; Sheela Foam, MOIL, Zomato, Aavas Financiers, Prestige in focus

Retail has regained its hunger for small and mid-cap shares.

“I start with the assumption that the market is always wrong and that there is a divergence between the way people look at a situation and what the situation is.” - George Soros

The correction in mid, small and micro cap stocks in March led many market veterans to predict that incremental money would flow into large caps, as they are relatively cheaper. Some pockets have started showing signs of that happening, consider the steep rise in shares of capital goods and multinationals. At the same time, retail has regained its hunger for small and mid-cap shares as well.

The view among HNIs remains the same: keep your winners, but don’t buy anymore. Given the valuations are still high in the second-line stocks, the March quarter numbers will be watched more closely. Narratives are good, but some of the grand story should start reflecting in the numbers - this is the growing view among investors.

Domestic institutions were net sellers on Friday after a long time. It is too early to call a trend. But at a time when FIIs have been extremely selective, lack of support from domestic funds could undermine market sentiment in the short term.

MOIL (Rs 318, +1.3%)

The company reported best annual production and sales numbers in FY24.

Bull argument: Recent price hikes to reflect in March quarter earnings. Global supply tightness to keep manganese prices high, according to Antique.

Bear argument: Stock has given subpar returns over the last 14 years. Topline growth has been rangebound for the last four years.

Sheela Foam (Rs 975.25, +3%)

The District Consumer Disputes Redressal Commission (DCDRC) issued an order in favour of the company in the insurance claim matter.

Bull argument: Sleepwell sales grew 26 percent in Q3FY24. Capacity expansion has been completed in Australia and SFL expects volumes to see

stable growth ahead. Company hopeful of Kurl-on margins reaching its long-term trend of 10 percent. Betterg product mix (higher mattress share) should bolster EBITDA margins, says Numvama.

Bear argument: The company reported a muted showing in the December quarter. Australia is seeing a marginal decrease in volumes. Growing popularity of home décor outlets such as Ikea could disrupt the sales channel, according to Nuvama.

Prestige Estates (Rs 1,295, -0.72%)

The company will acquire a 21-acre land parcel in Whitefield, Bengaluru for Rs 450 crore for a residential project.

Bull argument:  Residential property market in Bengaluru still going strong. Stock has favourable ratings from many analysts. Domestic funds have been steadily increasing exposure to the stock.

Bear argument: The Q3FY24 saw revenue decline 23 percent YoY as a result of delay in project completion. The stock has trebled over the last year. Topline growth has been flattish for the last four years.

Aavas Financiers (Rs 1,594.45, +9.8%)

The Q4 disbursements are up 20 percent to Rs 1,890 crore, assets under management up 22 percent to Rs 17,300 crore.

Bull argument: The NBFC has been expanding and added 21 new branches in FY24. IDBI Capital expects the company’s AUM to grow 21 percent CAGR in FY23-26 backed by large market opportunity in affordable housing.

Bear argument: Low return on capital employed. FIIs have reduced stake in the company.

Zomato  (Rs 190.5, +1.9%)

The shares hit a fresh record high.

Bull argument: The food delivery business is still in a nascent stage in India. Quick commerce arm Blinkit turning around faster than expected. Synergies with HyperPure to benefit.

Bear argument: Valuations high. Stock now beginning to become over owned as more investors buy into the story. Persistent food inflation can change eating habits.