Short Call | Retail will try to pre-empt MFs; Karur Vysya holds ground; DreamFolks soars; downgrade fells Wipro

AMFI has suggested is that funds should moderate inflows in midcap and smallcap schemes.

“People always have this emotional relationship with stocks, and once they have been bitten by something, it takes a while to get back into it.” - Francois Rochon

Sebi has set the cat among the pigeons by asking mutual funds to ensure that they have necessary safeguards in place for their mid and small cap schemes. One of the measures that industry body AMFI has suggested is that funds should moderate inflows in these schemes. The good news is that many funds have already been doing that. The not-so good news is that when one scheme starts restricting inflows, investors go to other small cap schemes where there are no such curbs.

The strategy has been working well since there was a broad-based rally across small and midcaps. So, it did not really matter which scheme you were invested in: the probability of making decent returns was high.

Because inflows were strong, mutual funds kept buying the same set of stocks where they had the comfort, even if it meant buying at expensive valuations. And because mutual funds were buying, many retail investors too piled on to these stocks. Now that inflows from mutual funds are likely to slow down, the pace of rally in some of the stocks widely owned by mutual funds may moderate. And many retail investors would try to pre-empt the fund houses by selling out first.

Karur Vysya Bank: (Rs 186, +0.35%)

Bull argument: Consistent improvement in net profit for the last many quarters now. Among the well-run midcap private sector banks. Stock

looking strong on technical charts.

Bear argument: Credit growth for the sector as a whole has begun to moderate. Cost of deposits have been rising. This will put pressure on net interest margins. The stock is now beginning to look over-owned as institutions have been consistently raising their stake.

Wipro (Rs 515.80, -3%)

Kotak Institutional Equities downgraded the stock to reduce citing expensive valuations.

Bear argument: High attrition, weaker growth rate, expensive compared to better performing peers and absence of large orders.

Bull argument: While guidance for Q3 was tepid, the quarter is usually weak across all IT firms. The stock is not over-owned by institutions. An improvement in performance could change sentiment for the better. The stock is looking strong on technical charts.

Bharti Airtel (Rs 1,129.25, +0.16)

Jefferies has maintained  its ‘buy’ call with target price of Rs 1,300.

Bull argument: Bharti Enterprises Chairman Sunil Bharti Mittal said the company is looking to reach Rs 300 ARPU. Jefferies said Bharti Hexacom is placed favourably as "its markets have historically grown 3-5 percent faster" than the rest of India based on TRAI data.

Bear argument: The company has had a low RoE in the last three years. Delay in tariff hike is another concern. Also, with VI looking to raise funds, competitive pressures could increase.

DreamFolks ( Rs 507.5, +4.96%)

The stock surged after Motilal Oswal initiated coverage on the airport services aggregator with a ‘buy’ call.

Bull argument: DFS holds a 75 percent volume market share in domestic airport lounges and it is the only player with 100 percent coverage of airport lounges. Company stands to gain to benefit from the rapid growth in the Indian airline industry. Further, the increasing adoption of bank card (with lounge access as a key benefit) is boosting the pay-per-use revenue model of DFS.

Bear argument: The record jump in air passengers accessing Indian lounges over the last two years may lead to near-term growth moderation as banks tweak offers to manage costs. The company experienced a margin impact in FY23 from an exceptional revision in common area maintenance charges.

With contributions from Yash, Anishaa and Srushti.