Short Call | RBI's policy outcome enough to satiate but not to fill; ITC, Bharti Airtel in focus

Short Call

The RBI's decision to deliver a quarter-sized rate cut was a move that the market had already anticipated, however, the lack of new liquidity measures came as a dampener.

Estimates by Bandhan AMC indicate that the cumulative measures undertaken by the RBI thus far may still fall short of making core liquidity turn positive, given ongoing seasonal currency in circulation increases as well as continued dollar sales by the central bank.

With banks grappling with a liquidity crunch that's weighing heavy on their earnings growth, the lack of support measures from the RBI gave signals of persisting pain in the near-term.

While the door to more liquidity measures remains open as the market anticipates another rate cut in April or June, the absence of 'here and now' measures from the RBI sends a spark of uncertainty.

These clouds of uncertainty are also likely to hover around banking stocks, the biggest chunk of the Nifty 50, meaning that the benchmark is unlikely to be exempt from the heat.

ITC (Rs 430.1, -2.5%)

Reported Q3 numbers.

Bull Case: Going ahead, ITC's topline is likely to improve and margin stress will ease from FY26E which is likely to lead to resumption of the double-digit earnings growth trajectory. ITC’s core business of cigarettes has shown steady performance. With stable taxes on cigarettes, brokerages anticipate sustainable growth in this business

Bear Case: The FMCG sector is seeing moderation due to the rising commodity prices, which has weighed on margins. If RM inflation continues, it could impact profitability.

Bharti Airtel (Rs 1,676.65, +3.5%)

Shares rose after solid Q3 numbers.

Bull Case: Consistently improving financials, sustained customer additions, industry-leading ARPU and strong free cash flows continue to bolster its balance sheet. Nuvama sees the firm as the  best and only way to play the Indian telecom sector. Free cash flow of over Rs 10,000 crore should improve further once 5G capex is over.

Bear Case: Increased competition may affect pricing power, which may lead to lower
revenue growth and sub-optimal margins. In addition, high capex and absence of meaningful tariff hikes could strain the balance sheet.

(Inputs from Zoya and Vaibhavi)