Short Call | Quest for new stories, cheap diamonds, Morgan Stanley’s post-poll forecast, Berger Paints, Escorts in focus

The market is running out of good ideas as most of the decent stocks have been lapped up and are no longer cheap.

The spotlight shifted to metal stocks on Monday as the Street continued to look for fresh stories. The trigger was news reports that Tata Steel was close to receiving £500 million from the UK government as it tries to transition its Port Talbot plant in South Wales to a greener way of producing steel. Metal stocks across the board had started 2023 on an upbeat note, but the rally soon fizzled out as problems in China’s economy started surfacing. A weak China remains the biggest risk to commodity prices.

Berger Paints futures are trading at a discount to spot prices, indicating a build-up of short positions. The stock has had a good run so far in 2023, gaining around 25 percent, despite chatter of rising competition hurting margins of players across the board. Berger MD Abhijit Roy told CNBC-TV18 that this quarter will be a soft one, compared to Q1, but the next quarter will be strong. Roy said this year’s numbers won’t be affected much by the competition, but “will have to see what happens next year”.

Escorts Kubota has said that it will raise the prices of its tractors from September 16, and that the hike would vary across models and geographies. With commodity prices stable, the hikes reflect strong demand and pricing power. The stock has had a fantastic run over the last few months, but has now shot past the target price that even brokerages bullish on the stock have set. Purely on the valuations of its tractor business, some analysts feel that the stock may be overvalued. The tractor industry sees good demand, but is unlikely to repeat the scorching growth rate of last year.

The rally in mid-cap and small-cap shares shows no signs of abating, but

there are signs that it may soon turn out to be a race to the bottom. According to Nirmal Bang Equities CEO Rahul Arora, the market is running out of good ideas as most of the decent stocks have been lapped up and are no longer cheap. That is causing players create narratives in stocks they wouldn’t have otherwise touched with a bargepole. This is creating a situation where even the previously ignored stocks have turned expensive overnight.

Cement stocks appear to be regaining favour with the Street. The bet seems to be that the companies will be able to push through higher prices, given good demand. According to broking firm Jefferies, demand remains impressive as the sector is benefiting from low rains. Most dealers Jefferies analysts spoke to indicated stable or positive offtake for August. This could even result in a pleasant surprise in the second quarter earnings because of operating leverage, Jefferies said. In the derivatives segment, Shree Cement saw huge additions of both puts and calls. The stock, which has been struggling since the recent income tax raids, was the star performer in the cement space on Monday, gaining over 6 percent.

Depending on the results, Morgan Stanley believes the market has the potential to swing between positive-5 percent and negative-40 percent. If the lead party gets 260-plus seats, the market is likely to rally 5 percent. Around 240 seats for the lead party, and the market may skid 5 to 7 percent. If the lead party gets 225 seats, then the correction could be as high as 20-25 percent. And, if the lead party gets less than 200 seats, the market could crash 30-40 percent.

Emirates oil giant ADNOC, run by the president of the COP28 climate conference, is expected to spend more than $1 billion every month this decade on fossil fuels, reports CNBC, quoting an analysis by international NGO Global Witness. This is nearly seven times higher than its commitment to decarbonisation projects over the same timeframe, the research says. ADNOC has disputed the analysis and said the estimates were incorrect.

Individual investors in the US are growing wary of the stock market rally, says a WSJ report, quoting the American Association of Individual Investors survey. Bearish sentiment — or the expectation that stocks will fall over the next six months — is at 34.5 percent, and bullish sentiment is below the historical average. Institutional investors, too, are cashing in on their gains in the US-focused equity mutual and exchange-traded funds, with Refinitiv Lipper Data showing five straight weeks of outflows.

An increasing number of Americans are choosing engagement rings made from lab-grown stones, sending prices of natural diamonds into a freefall, reports Bloomberg. And yet, there seem to be no winners. While lab-grown diamonds are currently hurting the demand for natural stones, the upstart industry is also suffering. The price of synthetic diamonds has plunged even more steeply than that of natural stones, and are selling at a bigger discount than ever before.