Short Call | Traders pile on to Hindustan Copper, focus on Asian Paints, IEX, Indus Towers

The market made a strong comeback on Monday, but doubts linger if the current round of correction may have run its course. Bulls are holding their breath till the Nifty decisively closes above the psychological 20,000 mark. Meanwhile, investors continue to scour for opportunities in the small and micro cap space.

Traders have taken a shine to Hindustan Copper Limited (HCL) over the last three months, with the stock regularly figuring on the NSE’s F&O ban list. HCL has rallied over 40 percent from its lows in March even as the outlook on global prices has been hazy. On Monday, the stock surged 10 percent back with trading volumes at a near eight-month high. One possible explanation could the recent strength in copper prices, which have risen to a three-month high on hopes of a recovery in demand in China and possible supply shortage.

Last week, Chilean copper mining giant Codelco lowered its annual

production guidance and raised cost estimates. For a commodity stock, HCL is not exactly cheap at 46 times trailing 12-month earnings, but it is also the only pure play on copper among listed companies. The fourth quarter numbers were better than market expectations, and the street appears to be betting on a similar performance in the June quarter as well.

There is no talk yet about a potential divestment, though it looks like there would be enough interested parties if the government chose to walk that path. “I think on Hindustan Copper, we will certainly be taking a very good look,” Hindalco MD Satish Pai had told CNBC-TV18 in May when asked if Hindalco would be interested in Hindustan Copper and NALCO in the event of a likely divestment.

The initial excitement over the strong first quarter numbers appear to have worn off as the market is again fretting about the possible impact on profit margins as Grasim steps up its game in the paints business. In general, the market has not been overly kind to richly valued stocks in the recent rally. Asian Paints’ trouble seems to a risky cocktail of expensive valuation at a time when the competition is set to get fiercer. Analysts expect Asian Paints to retain its dominant position in the long term, but it is the here and now that is making the street anxious.

“In the medium term, entire paint industry might face margin pressure (which we expect to start hitting from FY25 onwards) as new entrants dole out higher incentives to influencers in order to grab market share, which might compel even market leader to match same structure,” write Phillip Capital analysts Vishal Gutka and Binay Shukla in their note.

The selling pressure in the stock may have abated for now, but from the tone of the analyst review notes suggest that the possibility of a meaningful upside in the foreseeable future appears slim. The government’s push for a market coupling operator was the first blow for IEX, and now analysts see aggressive capacity addition in the renewables energy space as another threat. The bad news does not end there. According to Antique Stock Broking analysts Rohit Natrajan and Pranav Furia, the soon-to-be-implemented Grid Code aims to bridge the gap between spot prices and term prices. Once that happens, power DISCOMs will have less incentives to buy from the spot market, the duo write.

The stock has had a decent run from the lows of April, but it does not seem to be out of the woods yet. Citi has retained its 'buy' rating on the stock with a target price of Rs 210 post June quarter earnings, citing the tower additions led by Bharti Airtel as a long term growth opportunity. Recently, some HNIs have piled on to the stock, betting on Idea Vodafone’s financial health improving with a likely dose of equity infusion. But there are sceptics as well.

Motilal Oswal has retained its 'neutral' call on the stock post the earnings. Its key concerns are two-fold: One, while Indus is benefiting from the aggressive site additions from Bharti along with 5G rollout, these are single tenancy sites. That is a drawback because multi-tenancy sites, where multiple operators share the same tower, tend to be more cost-efficient and can generate higher returns as they serve multiple customers. But the bigger worry is about Vodafone Idea’s health, about which Motilal Oswal is not as optimistic as the recent buyers in the stock.

“VIL’s weak outlook and limited funding capability could a.) dilute tenancies in the near term and b) put risk on the long-term tower sharing-led business model,” says the Motilal Oswal report.

When one door closes, another opens. Australian mining giant BHP can attest to this truism at the moment. After hit by a Chinese ban on Australian products, BHP is betting on the expansion of India’s steel industry to come to the rescue of its coal business, FT reports. Around 40 per cent of BHP’s coking coal — used by steel mills — is now heading to India, up from 30 per cent in 2019. India is targeting to grow its steel production to 300 million tonnes a year by the end of this decade, from 125 million tonnes last year. The country’s rapid urbanisation, infrastructure spending and growing industrial sector are seen as key drivers for steel demand.

While most investors are tripping over themselves to pour money into stocks, China’s retail investors are making a doleful trek in the opposite direction, exasperated by lacklustre returns. The country’s 200-million-strong individual investors are increasingly putting their cash into money-market funds, insurance products and bank savings accounts, WSJ reports.

China’s benchmark CSI 300 index lost around a fifth of its value last year amid its strict Covid lockdown, and has underperformed most of its global peers in 2023 so far. Unlike other countries, where large institutions dominate trading, China’s stock market is still driven by its 219 million individual investors, who accounted for around 60 percent of trading volumes last year.