Short Call: Tech stocks steal the show; bond booster from war; Escorts, Indus Towers, NMDC in focus

Expect IT stocks to be in focus over the next few sides.

"Distinguish between outcomes that are unlikely and outcomes that are catastrophic. The latter are to be avoided even if the odds on them are tiny." - Peter Bernstein

All eyes are on TCS second quarter earnings today. Not a bad thing when expectations are low. Expect IT stocks to be in focus over the next few sides. Big upsides look unlikely as things don’t seem to be getting better in the US, never mind the strong jobs market.

Escorts

The stock vroomed to a fresh high yet again on Tuesday. Hard to believe that all the excitement is about the tractor business. Data by the Federation of Automobile Dealers Association (FADA) shows that tractor was the worst-performing segment in September with a 26 percent contraction. Is the market betting that strong performance in the company’s railway and construction equipment segments will make up for the sluggishness in the core business, or is it something more than just a strong operating performance?

NMDC

The stock rallied 5 percent on Tuesday, and came within a whisker of making a fresh 52-week high. It has gained close to 50 percent over the last three months as the market bets that things should start looking up now that the company is back to focussing on its bread-and-butter business: iron ore.

From a Prabhudas Lilladher report last month:

“NMDC plans to reach its earlier quoted 100-mtpa target by 2030 in-line with growing requirement from domestic steel producers. It has already achieved  around 80 percent capacity utilisation since last two years (with current around 50mtpa capacity). Delays in setting up steel unit affected iron ore mining business, however we believe the situation is going to change from hereon as high return ratios of mining business would take precedence.”

Indus Towers

The shares zoomed close to 5 percent on Tuesday. Traders are betting that an improvement in the health of Vodafone Idea should help Indus Towers recover its dues from that company. The Vodafone Idea shares gained 2.2 percent after it filed a curative petition in the Supreme Court on the adjusted gross revenue (AGR) dispute. The apex court has agreed to consider the matter. The big trigger for Indus will be Vodafone raising funds. In a letter to the telecom department (DoT) in August, Vodafone had said that many investors have shown interest and that the fund-raise “would set in motion an accelerated Rs 65,000-crore capex plan over four years to turn around the company”. Citi has a price target of Rs 210 for the stock.

Safe haven

Prices of 10-year US Treasurys bonds rallied on Tuesday as investors looked out for safe havens amid the Israel-Hamas war. Treasury bond prices had been falling of late on fears that interest rates would continue to rise, causing the value of older bonds to depreciate.

China stimulus

China is planning to raise its budget deficit for 2023 beyond 3 percent, as the government prepares to unleash a fresh stimulus to help the economy meet the official growth target, reports Bloomberg, quoting unnamed officials. Policymakers are weighing the issuance of at least 1 trillion yuan ($137 billion) of additional sovereign debt for spending on infrastructure such as water conservancy projects.

Wary consumers

The US job market is going strong, but the same cannot be said of consumer sentiment. Former Walmart US chief executive Bill Simon has warned that consumers are starting to buckle for the first time in a decade, reports CNBC. Simon said factors like inflation, higher interest rates, federal budget wrangling, polarised politics and student loan repayments and fresh global crises are weighing on consumer decisions. Simon’s remarks come at the time of a big sale week by US retailers.

Crude

OPEC has raised its world oil demand forecasts for the medium and long term in an annual outlook, and said $14 trillion of investment is needed to meet this demand even as renewable fuel use grows and more electric cars take to the road, reports Reuters. OPEC general secretary Haitham al-Ghais has slammed calls to halt investments in new oil projects, labelling it an "extremely risky narrative".

Pricey tech

Bank of England feels US tech stocks may be expensive considering the uncertain macro environment and high interest rates. “…Some risky asset valuations appear to be stretched,” the UK central bank’s financial policy committee said on Tuesday. This increases the possibility of a sharp correction if the companies are unable to deliver on the growth market is expecting from them, it said.

Dr Copper

Fitch Solutions has trimmed its 2023 average annual copper price forecast to $8,550 per tonne from $8,800, citing growing strength in the US dollar, sustained fears of another round of rate hike by the Federal Reserve, and a weak global demand. Various macro fundamentals and geopolitical factors have placed a cap on the price growth, reports Mining.com. Prices have averaged $8,628 a tonne in the year-to-date as of September 19, lower than the average of $8,788 seen in full year 2022.

Unaccountable

Fewer people in the US are pursuing a career in accountancy, threatening to worsen an already dire shortage of accountants, reports WSJ. Salaries have risen for young people in finance, marketing, logistics, consulting, and even teachers in recent years. At the same time, the median, inflation-adjusted pay for young accountants has stagnated.