Short Call | The Fed's balancing game on the radar; Piramal Pharma, HDFC Bank in focus

Short call

The spotlight in global markets today is firmly on the Federal Reserve’s upcoming policy decision and forecasts, set to be unveiled late Wednesday night. While another quarter-point rate cut appears highly likely, the real focus is on the Fed’s strategy for 2025 as it works to balance inflation control with sustaining economic growth.

And just when things couldn’t get trickier, enter the wildcard—Trump’s proposed heavy tariffs. These heavy tariffs could upend the inflation outlook, potentially reversing the recent downward trend. If these policies take effect, inflationary pressures could resurface, forcing the Fed to adjust its trajectory carefully.

With the US economy showing resilience and the labor market remaining strong, the Fed is expected to proceed cautiously. This likely means fewer and slower rate cuts in 2025 than the four initially projected. The key question now is how many rate cuts the Fed can realistically implement while navigating these uncertainties.

Piramal Pharma (Rs 260.6, +3.7%)

Shares gained after domestic brokerage JM Financial initiated coverage on the stock with a 'Buy' with a target price of Rs 340, an upside of 30.5 percent from its close.

Bull Case: By 2028, the Indian CRDMO industry is set to double from FY23 levels with Piramal Pharma standing out among listed peers for its differentiated offerings, global manufacturing footprint, and end-to-end capabilities. Driven by steady growth in complex hospital generics and scaling of its consumer health business, the company's topline is expected to grow around 15 percent between FY24-27.

Bear Case: Though the company has a strong compliance record, any severe regulatory action could disrupt supply, impacting revenue and profitability. Dependence on third-party suppliers means any disruptions or sub-standard materials could affect production and financial performance. Contract Research Organisation (CRO) business relies on recovering biotech funding and any slowdown could hurt future growth projections.

HDFC Bank (Rs 1,829.90, -2%)

Shares fell after SEBI issued an administrative warning letter alleging non-compliance with certain SEBI Listing Regulations. The issue pertains to the resignation of Arvind Kapil, a senior management executive at the bank.

Bull Case: The consensus view is that the bank is on a stable path to address post-merger challenges as NII, profit metrics grow and credit to deposit ratio drops. According to Bernstein, HDFC Bank's robust fundamentals, particularly in a challenging environment, differentiate it from the rest of the sector.

Bear Case: The bank's slower credit growth could limit further reductions in the CD ratio. Investec highlighted that CASA (current account savings account) growth remains a critical factor in driving profitability.

(Inputs from Veer and Neeshita)