Short Call: RBI and FinMin despondent on dropping deposits, markets to blame? Balrampur Chini Mills, Titagarh Rail Systems, Sunteck Realty in focus

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The Finance Minister and Reserve Bank of India's Governor must have a lot in common, but most recently, both leaders have their fingers hovering over the alarm bell, ready to sound it out as bank deposits steadily decline.

Recently, the FinMin chaired a meeting with heads of public sector lenders discussing deposit mobilization among many issues, while RBI Guv Shaktikanta Das announced that all banks must keep a close eye on the widening gap between credit and deposit growth, in order to avoid a liquidity crunch.

Many blame the tearaway rally in the stock market over the past year for the falling deposit growth. After all, what would you rather: 7 percent from a fixed deposit or 26 percent through an index fund? Fund inflows are at an all-time high as people move their money from bank accounts to the secondary markets.

But is there truly a correlation between flailing deposit growth and higher retail flows (either directly or through mutual funds) into the equity market?

According to Dipanwita Mazumdar from Bank of Baroda, there might be some merit to the argument. The ratio of mutual funds' AUM to bank deposits is far higher than the long-run average, reflecting a readjustment of the portfolio of household savings. However, the quantum of the rise in mutual funds' AUM versus the falling deposit growth may not be comparable, but it cannot be denied that some rejigging is happening.

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But who knows how long this may last? As concerns over valuations increase and with a tepid earnings season, non-institutional investors might pull their money out or at least stop pouring as much into the markets. And perhaps that 7 percent return on a fixed deposit might start looking appealing again...

Balrampur Chini Mills (Rs 571.15, +7.4%)

Shares gained for the third session in a row.

Bull Case: The Polylactic Acid (PLA) project is seeing healthy progress with the facility expected to be operational by late 2026. Collaboration with Sulzer AG, Alpine Engineering, and Jacob to enhance global positioning, said JM Financial. Domestic sugar prices are expected to remain buoyant, supported by a possible MSP hike. The company's strong balance sheet will help handle near-term headwinds.

Bear Case: In Q1 FY25 sugar crushing dropped by 54 percent YoY and production declined by 48 percent YoY. Distillery production fell by 13.5 percent YoY in the June quarter due to regulatory issues. Any further decline in sugar production could pose a risk. Changes in government policies towards ethanol blending could impact earnings estimates, said Sharekhan.

Titagarh Rail Systems (Rs 1,447, -2%)

The stock was trading ex-divided and hence investors who bought into the counter in hopes to receive a dividend sold off part holdings, now ensured of their eligibility for payouts.

Bull case: The government's strong focus towards domestic production within railways. Morgan Stanley sees the company benefitting from Indian Railways' plan to procure 90,000 wagons by 2025. Efforts to enahnce freight and passenger segment capacities to further aid entry into export markets.

Bear case: Increasing competition in the wagon industry can weigh on operating margins. Recent acquisitions of companies based in Europe may drag earnings due to a slowdown in that market.

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Sunteck Realty (Rs 615.50, +5%)

Clocks pre-sales of Rs 500 crore (up 30% YoY) and collections of Rs 340 crore (up 19% YoY) in Q1FY25.

Bull Case: Company's focused land bank in Mumbai and ability to secure value-enhancing properties position it for strong growth, with operational scale-up expected to generate healthy cash surpluses.

Bear Case: The realtor faces significant risks from a prolonged slowdown in Mumbai’s residential market, potential regulatory challenges, and partnership risks in JDA/JV projects, which could impact its growth.

(With inputs from Harshita, Vaibhavi, and Neeshita.)