Short Call | Street's smallcap romance beats largecap lures; focus on Vedanta, Suven, Lemon Tree, Aurobindo Pharma

Analysts see credit growth moderating in the quarters ahead.

For those looking for a meaningful correction to enter the market, it is turning out to be a long wait. At the same time, none of these investors seem to be kicked up on large-cap stocks, where valuations look much more reasonable.

It is a two-tiered market at the moment, with the small and midcaps seemingly in a universe of their own. This is the world of stories - of order wins and future trends. In comparison, the largecap universe looks less glamorous. Bank stocks are out of favour because low-cost deposits are hard to come by. Also, analysts see credit growth moderating in the quarters ahead. The Street is not upbeat on FMCG either because rural sales volumes do not show any meaningful signs of a pick-up, or the commentary from companies is not inspiring. And, given the high valuations, fund managers are looking for a better entry point.

ICICI Securities analysts Abdulkader Puranwala and Kashish Thakur wrote last week that they were cautious in their outlook for the pharma sector in FY25. The domestic market is expected to do well, but further gains in the US market will depend on the companies’ ability to reduce prices.

Not much cheer for IT too. Weak discretionary spending, slower decision making, and revenue conversion amid uncertain macro environment, are leading to revenue softness in this quarter as well, with an uncertain recovery timeline, writes Dipesh Kumar Mehta of Emkay Global in his report.

IDBI Capital’s Vishal Periwal and Shubham Shelar write that their interaction with cement dealers suggests cement price at an all-India level fell 1 percent month-on-month in February. They see volumes rising 8-10 percent this quarter, but weak prices could hurt operating profits by Rs 60-70 per tonne sequentially for the industry.

The company plans to deleverage as much as $3 billion in debt over the next three years.

Bull argument: The demerger plan approved by the board in September should result in significant value unlocking. Outlook on aluminium is positive because of transition to green energy.

Bear argument: Approval for Tuticorin copper plant has been hanging fire. No big names were among the buyers in the recent sale of equity by the promoters in the open market.

The stock surged after the firm announced it will merge with Cohance Lifesciences.

Bull argument:The merger will help the company enhance its position in CDMO and API position. Abu Dhabi Investment acquired stake in the

company through bulk deal on March 1.

Bear argument: Suven’s revenue Q3 revenue fell 38 percent to Rs 213 crore as CDMO pharma and speciality chemicals reported degrowth.

The hotel chain opened its seventh Lemon Tree Resort in Rajasthan's Kumbhalgarh.

Bull argument: Strong pipeline with 3,423 rooms over FY24-27. The NCR and Mumbai markets are expected to see a strong demand for hotels due to opening of mega convectional centers.

Bear argument: Debt has increased due to expenses made on Aurika MIAL.

The stock soared after the pharma company received final approval from the USFDA to manufacture and market Fingolimod capsules.

Bul argument: The approved product has an estimated market size of $447.3 million. The company reported a 90.6 percent on-year rise in consolidated net profit at Rs 936.2 crore in Q3FY24.

Bear argument: Fingolimod capsules are bioequivalent and therapeutically equivalent to Gilenya Capsules of Novartis Pharmaceuticals. The company received seven observations from USFDA on March 1 for the Telangana subsidiary.