As Q1 FY25 earnings wrap up, it's clear that India Inc. kicked off the fiscal year with a bit of a stumble. But wait, there's a silver lining. The Reserve Bank of India's latest bulletin finally gave us a peek at something both the finance minister and investors have been eagerly awaiting for the past two years: uptick in private sector capex.
The finance minister has been quite vocal, nudging the private sector to pick up the slack, given that there's only so much public spending can do. And investors? They’ve been crossing their fingers that rising capex will fuel sustained growth, essential to justifying the lofty stock valuations we see today.
So, what's the scoop? The RBI noted a modest uptick in private capital expenditure, climbing to 1.4 percent of GDP in FY24, up from a rather dismal 0.9 percent in FY23. It's progress, but not enough to pop the champagne just yet. As Nomura cautiously pointed out, while this marks an improvement, it is "still moderate compared with historical levels."
But the real nail-biter is still to come. Later today, the man with the key to the world's cash vaults - Jerome Powell - will take the stage at the Jackson Hole symposium, the Davos for central bankers. Remember his 2022 speech? It triggered a market sell-off that had everyone scrambling. Could this time be the reverse?
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Since July 1, Foreign Institutional Investors (FIIs) have been on a selling spree, offloading shares worth a whopping Rs 28,495 crores. But Domestic Institutional Investors (DIIs) have been the heroes, scooping up Rs 64,698 crores in shares in the provisional cash market. Powell's speech could very well be the pivot that flips the script for the rest of the year. Surely, the market's holding its breath for this just now.
Paytm (Rs 556, -3.14%)
Paytm to sell its high-margin movies and event ticketing business to Zomato for Rs 2,048 crore
Bull Case: The sale of Paytm's ticketing business sharpens its focus on core financial services, enhances cash reserves, and provides capital for high-growth areas, driving potential EBITDA positivity by FY27 and long-term shareholder value, according to analysts at Motilal Oswal.
Bear Case: While the sale boosts short-term cash flow, it sacrifices a high-margin segment, potentially limiting future earnings growth and posing risks if reinvestment in core services doesn't yield expected results.
Ola Electric (Rs 131, -5%)
The share price witnessed profit booking after doubling in to record highs since its listing on August 9.
Bull Case: Regulatory support, its ability to reduce costs, and a favourable risk-reward profile in its battery venture. The company has also made entry into the electric motorcycle segment with the launch of the "Roadster" series.
Bear Case: Net loss has widened in Q1 on increased finance costs which have nearly doubled to Rs 67 crore from Rs 36 crore last year and an increase in overall total expenses, which jumped to Rs 1,849 crore from Rs 1,461 crore last year.
Shyam Metalics and Power (Rs 811.35, +6.3%)
UBS initiated coverage, seeing a 60% upside from current levels.
Bull Case: According to UBS, the firm is moving from a producer of commoditised to value-added products, such as making sponge iron to aluminium foil. This should lead to better margins, improved return ratios and less susceptibility to commodity price movements.
Bear Case: Shyam Metalics could see certain issues on slower adoption of its products, any intensifying competition or a delay in its capex plans.
(With inputs from Harshita, Veer, and Zoya)
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