“If you really know businesses, you probably shouldn’t own more than six of them. If you can identify six wonderful businesses, that is all the diversification you need and you’re going to make a lot of money.” - Warren Buffett
It is a perfect storm out there. Too many factors were at play at the same time — starting with advance tax payments to mutual fund stress test, and from Sebi sounding out a froth alert to money laundering in some smallcaps, and RBI crackdown on NFBCs.
On the positive side, liquidity does not appear to be strained and macroeconomic fundamentals too are in good shape. As soon as the advance tax payment pressure eases, some sanity is likely to return. But market veterans are unanimous on one thing: the time for getting rich by buying junk stocks is over. Investors won’t be willing to overpay just on the basis of some fancy story, they would rather wait for the story to start reflecting in the earnings.
Fundamentally unsound stocks will be consigned to the heap of fallen angels, and the focus will shift to credible stories which were being ignored so far.
Macrotech Developers (Rs 1004, -10.4%)
The stock fell after promoter Sambhavnath Infrabuild and Farms sold 0.5 percent stake in the company. The transaction was valued at Rs 586.72 crore.
Bull argument: Earlier this week, the company raised Rs 3,000 crore through QIP. Participants included Rajiv Jain's GQG Partners, Invesco Developing Markets Fund, and Stitching Depositary APG Emerging Markets Equity Pool.
Bear argument: As of Q3FY24, net debt stood at Rs 6,750 crore. Cash flow from operations, excluding UK repatriations, declined 28 percent on-year and 17 percent on-quarter to Rs 1,040 crore.
REC (Rs 448, -7.2%)
The stock was among the major casualties in Wednesday’s sell-off.
Bull argument: Outlook on the power sector remains bullish. Valuations have
run up, but at less than two times the book value, not unreasonable. Decent dividend yield.
Bear argument: Unwinding of speculative build-up could put pressure on the stock in the near term. Stocks that rise fast also come off as quickly.
Whirlpool of India (Rs 1259, +0.45%)
The stock held ground firmly despite the selling fury on Wednesday.
Bull argument: Mutual funds have recently increased exposure to the stock. Some HNIs too have bought the stock in good quantities during the recent block deal when the parent company pared its stake. Since the stock has not performed, it is unlikely to fall much.
Bear argument: Rerating unlikely till there are some signs of improvement in the company’s operating performance.
ITC (Rs 422, +4.34)
The stock gained after BAT’s stake sale and institutional investors like Singapore government and ICICI Prudential Mutual Find picked up stakes.
Bull argument: Morgan Stanley is 'overweight' on the stock due to moderate cigarette tax environment and scaling up of non-cigarette business. Valuations look attractive. Also, a decrease in promoter holding, and hence higher floating stock will mean increased weightage for the stock in MSCI indices, resulting in inflows from passive funds.
Bear argument: Cigarette sales were down 2 percent on-year in Q3. The big rerating story has played out over the last year.
Jubilant Food Works (Rs 431.35, -3 %)
Shares fell as brokerages expressed disappointment on the company’s recent acquisition of Turkey (DP Eurasia) and Bangladesh businesses.
Bull argument: Higher growth and better profitability for Domino’s Turkey due to its fast-growing economy, opportunities for growth in Turkey, strong brand recall, and benefits being seen from the franchise model.
Bear argument: While the Turkey business has high growth, currency devaluation is a concern. India business remains under pressure due to competition in the pizza business.
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