Short call: Stubborn Fed, falling knives, Adani rout, Voltas is cool again

Brace for volatility as both the monthly and weekly F&O contracts expire today. It is advantage bears, for now, as the news flow is in their favour. To recap: more downgrades than upgrades post Q3 earnings season, rising interest rates globally and locally, continuing rout in Adani stocks, and jittery global markets. Institutional investor activity in the cash market has been falling, causing stock prices to drop faster on smaller doses of selling.

Higher for longer

More grief for bulls as the latest Fed minutes showed signs of inflation softening, but not enough to pause on rate hikes. The new buzzword in the US is ‘no landing’, meaning that growth and inflation could remain strong, prompting the Fed to keep hiking rates steadily.

Buy or wait?

Investor dilemma is understandable. The market has been moving in a tight range for the past few months. So there is confusion on whether it is time to sniff around for bargains or just avoid catching falling knives (stocks that can fall a lot more). Perhaps this quote by Peter Lynch can help: If you can't find any companies that you think are attractive, put your money in the bank until you discover some.

Key Nifty level: Bulls and bears are closely eyeing 17,350, the Budget day low. If it fails to hold, more bears may emerge from their lairs.

Bank stocks

What a dramatic U-turn for the sector. The toast of the Street till a few weeks back, bank stocks are now becoming toast. All the more surprising if you consider that this is the sector which has seen the most number of earnings upgrades recently. Why the selloff then? The popular theory right now is that net interest margins (NIMs)  will shrink in the days ahead as banks offer better rates to depositors.

Interestingly, people don’t seem to be rushing to park money in banks despite FDs now offering attractive rates compared to what one can hope to make from the market.

A simpler explanation for the fall in bank stocks could be that investors are booking profits after a spectacular run-up till January. Once the stock prices stabilise, the narrative could shift to “Oh, credit growth continues to be strong”.

Adani stocks

A fresh round of battering on Tuesday. Most stocks of the group are still ridiculously valued even after falling more than 50 percent from their highs. But there are a few where valuations can be said to be reasonable if not cheap. But the trouble, as one fund manager points out, is this: When stocks overshoot on the upside by miles, they undershoot on the downside as well by miles before settling down closer to a fair value. So bargain buyers should be ready for a period of undervaluation before their bets pay off

Voltas

The stock, along with other air conditioner stocks rallied in Wednesday’s bearish session as the weather department’s warning of an early summer is expected to boost sales of cooling products. LIC has recently raised its stake in Voltas by 200 basis points and now holds close to 9 percent.

But remember: One swallow does not a summer make, and likewise one weather bureau warning may not cause investors to change their outlook on the sector overnight. Voltas has been struggling over the last year as it tries to balance profit margins and market share. Same has been the case with other cooling stocks as well, barring Blue Star.

Just look at power stocks: they rallied on Tuesday after the government invoked Section 11 of the Electricity Act, but were unable to hold ground when the market collapsed yesterday.

Zee Entertainment

The company has been dragged to the bankruptcy court by IndusInd Bank for non-payment of dues by group company Siti Networks. That raises questions on the fate of Zee’s impending merger with Sony. Zee late last evening issued a statement saying the merger was on track, but sentiment for the stock is quite weak, judging by the 24 percent decline in stock price in less than three months.

Delhivery

Internet Fund III sold 1.7 stake or 12.36 lakh shares at Rs 335 apiece on Wednesday. Nothing has been going right for the stock since the company warned of slowing e-comm sales in October last year. Quite a few brokerages have turned bullish on the stock of late, but investors are yet to bite. At the time of its listing, Delhivery’s market cap was more than that of the market cap of all listed logistics players, and most of them profitable. And now after a 50 percent decline from the top, there are still no takers.