Short Call | Rail stocks chug into bear zone, retail investors jittery, RVNL derails, Bandhan hammered, Bharat Forge, Honasa in focus

Many rail stocks are now down 20-30 percent from their peak, and the latest quarterly earnings don’t make a case for a strong rebound any time soon.

“I have a great belief that everything is cyclical in life, particularly in the investment world.” - Jean Marie Eveillard

The power of retail investors can be a double-edged sword as Monday’s institutional fund flows show. Both foreign and domestic investors were net buyers, but stocks across market cap categories were under pressure. One explanation is that smart money has quietly exit some of the fancied names in the PSU and railway sectors over the past few sessions, unloading their positions onto the less savvy among retail investors.

The result: stocks moved from strong hands into the hands of weaker players. As numbers from key PSU companies turned out to be below market expectations, realization dawned that valuations were far ahead of fundamentals, and there was a sudden stampede for the exit. Many rail stocks are now down 20-30 percent from their peak, and the latest quarterly earnings don’t make a case for a strong rebound any time soon.

And, when sentiment changes for the worse, the very same people who were looking at the brighter side of every development start talking about the negative aspects. Take for instance the January consumer price inflation (CPI). The headline number shows signs of inflation cooling, but the talk is about food inflation within CPI, which continues to be high even after having come off by a percentage point since December.

There have been periodic corrections since mid-December. But the intensity of selling on Monday, especially in mid, small and micro caps have been so severe that many retails investors are now tempted to take some money off the table.

The problem: There are too many of them thinking the same way.

The buy-on-dips strategy has worked well so far. But for it to work this time as well, you need a fresh crowd of investors who think stocks are looking cheap after the recent correction. The earnings picture does not give that confidence.

Honasa Consumer (Rs 440, +1.66%)

The company posted a three-fold jump in net profit in Q3. Revenue up 28 percent

Bull argument: The company launched 122 products in 2023 and expanded its omnichannel distribution.

Bear argument: Other income helped drive Q3 financials. The management sounded cautious amid competitive intensity and soft demand environment. High advertising spend as customer loyalty has been hard to come by

Bharat Forge (Rs 1,131.1, -13.92%)

Company in its Q3 results guided lower growth in Q4FY24 and FY25 across domestic and export markets.

Bull argument: Revenue and Profit growth exceeded market estimates. Defense business boosted revenue. The company expects growth in

domestic manufacturing operations as industrial sector strengthens.

Bear argument: Weak European and US economies will cause problems for MHCV, oil and gas segments.

Rail Vikas Nigam (Rs 230, -11%)

Stock was among the biggest losers among midcaps on Monday, and has fallen over 30 percent from its peak.

Bull argument: Order book strong at around Rs 70,000 crore. Timely execution should boost earnings in coming quarters.

Bear argument: Stock will go out of the MSCI Small Cap Index at the end of this month. Stock looking weak on technical charts after sharp fall from peak. December quarter numbers have been lackluster, making valuations look expensive.

Apollo Hospital (Rs 6,604.70, 2.6%)

Market has taken the third quarter numbers positively

Bull argument: Turnaround in Apollo 24x7 business; occupancy levels improving steadily. Pick up in medical tourism could be the next trigger.

Bear argument: Valuations not cheap after a 50 percent rally over the last year. The stock has already seen a re-rating. Further gains could be gradual.

Bandhan Bank (Rs 199.6, -7.68%)

Shares sank after Q3 results missed estimates and on reports that a forensic audit on Rs 23,300 crore of loans disbursed under government's credit guarantee schemes is underway.

Bull argument: Strong business growth and softer credit costs may lead to robust medium-term profitability. Management expects 50 percent of assets to be secured by FY26.

Bear argument: NPA rose to 2.2 percent in Q3FY24 but if the National Credit Guarantee Trust Company’s claims are correct, the figure could be much higher. More than expected changes to senior management point to higher uncertainty.