“Investors' feelings and reactions regarding inflation are probably more the result of the stock market action that they have recently experienced than the cause of it.” - Benjamin Graham
The hotter-than-expected consumer inflation reading in the US and the resulting sell-off in global markets failed to rattle the bulls on Dalal Street beyond the first couple of hours of trade. One reason could be too many people were expecting a steep correction (so that they could load up on their favourite stocks at lower prices). Another reason could be that investors in India are not too bothered about FII selling at a time when SIP inflows into mutual funds are rising every month.
But what bulls need to be mindful is that sustained foreign fund selling can keep a lid on stock prices. Foreign funds have already net sold over Rs 28,000 crore of Indian shares in 2024 so far. All that supply needs to be absorbed. Add to the perception that valuations are not cheap, third quarter earnings have broadly been so-so, and rate cuts globally and locally may be slow in coming, a big upside near term looks unlikely even if the odd burst of short covering could trigger the occasional rally.
Play it safe
Devina Mehra of First Global feels a time correction (prices going nowhere for sometime) is more likely than a price correction in large cap stocks in the medium term. At the same time, investors are better off avoiding small, micro caps and IPOs, she said in an interview to CNBC-TV18.
Info Edge: (Rs 5,116, -4.21%)
The stock was down over 8 percent over the last week after a sharp rise in the first week of February.
Bear argument: IT hiring is yet to pick up. The management is unsure when things will start looking up. Since a good chunk of billing comes from IT hiring, that is bad news. The stock is at the same level it was two years ago.
Bull argument: Hiring in non-IT sectors remains strong. Real estate vertical 99acres.com is doing well because of the buoyancy in the property market.
Burn rate in 99acres, a key cause for concern for investors, has reduced.
BPCL (Rs 626.95, +7.30%)
All PSU oil marketing companies gained on February 14. BPCL Trust sold shares through a block deal, the identity of the buyer could not be confirmed.
Bull argument: India's fuel demand remains strong. ICE vehicles not going out of style anytime soon. Valuations reasonable. Brokerages believe re-rating possible.
Bear argument: Disinvestment is getting delayed. With a run-up in the stock price, the government may consider an OFS which could keep the stock under pressure. DIIs have been reducing stake.
NTPC: (Rs 328, +2.1%)
The stock continues to steadily trend, and is up 15 percent in the last two months.
Bull argument: According to Sharekhan, addition of thermal power capacities would provide earnings growth visibility. Also, focus on ramping up of renewable energy portfolio and new areas of green hydrogen/battery storage could be key re-rating catalysts.
Bear argument: Kotak Institutional Equities feels valuation at 2 times price to book value is higher than the logical 1.25-1.50x P/B for existing coal-based assets based on regulated return and cost of equity capital. Returns likely to shrink going forward because of eventual transition to solar electricity
IRCTC: (Rs 933.85, +2.75 percent)
December-quarter net profit rose 17 percent to Rs 300 crore.
Bull argument: Consistent growth in bottomline. Other lines of business such as catering and water are seeing good traction.
Bear argument: Runaway growth in mainstay ticketing business unlikely. That could limit the potential for a rerating. Stock riding the euphoria in the railway sector.
Nalco (Rs 155.4, +9.48%)
The stock soared after Nalco reported better-than-expected December quarter results.
Bull argument: NACL’s JV KABIL's lithium mining agreement with Argentina’s CAMYEN SE will help diversify product offerings. Operationalization of the Utkal D coal block will help enhance raw material security.
Bear argument: Until the fifth stream of alumina comes on stream, NACL is expected to operate at full capacity, leaving little room for expansion for the next two years. Revenue from the aluminium business was down 4 percent YoY.
Siemens (Rs 4,397.95, +1.96)
The company’s Q3 results beat street estimates.
Bull argument: Revenue grew by 20 percent powered by strong execution. Order inflows have grown 10 percent YoY.
Bear argument: New orders in LV Motors segment have slowed down due to de-stocking.
With contributions from Shailaja, Anishaa, Ananthu, Yash, Srusti
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