Short Call | Valuations, volatility weigh on Nifty 2024; Devyani dazzles, Zee stutters; Apollo in fast lane; bull run in durables

Analysts stay cautious about high valuations and expected volatility in markets.

“To establish the right price for a stock, the market must have adequate information, but it by no means follows that if the market has this information it will thereupon establish the right price.” - Benjamin Graham

Targets for the Nifty by the end of the next year have begun trickling in, but analysts seem conservative in their projections. In fact, the target level set by some domestic brokers such as Kotak's 21,834 could well be breached before the end of this year itself. HDFC Securities did not spell out any target but projects an 8-10 percent rally for the next year.

Valuations remain expensive and markets could be volatile as bond markets are pricing in rate cuts much sooner than the Fed. Foreign broking firms have not issued India-specific 2024 targets yet, though most of them sounded optimistic after the state election results. Mixed signals are in the air.

Devyani International (Rs 192.80, +5.33%)

Shares gained after the company announced plans to acquire 274 KFC restaurants in Thailand by acquiring a controlling interest in Restaurants Development Co.

Bull case: Latest expansion plans could provide more opportunities for revenue growth. KFC is a leader in Thai market. Tourist arrivals in Thailand is yet to fully recover.

Bear case: India business is struggling. Margins and profit have been volatile over the past 4-5 years. Persistent inflation continues to be a challenge for QSR chains.

Zee Entertainment (Rs 271.7, -3%)

Merger with Sony remains shrouded in uncertainty after Zee sought for an extension of timeline to complete the amalgamation process.

Bull case: Merger goes through smoothly and Zee's portfolio strengthens with Sony's offerings. Management remains confident of delivering

advertising revenue growth, ahead of the industry’s growth rate.

Bear case: Corporate governance issues continue to linger, affecting the merger. Delay in monetisation benefits and higher content cost could affect earnings, say analysts.

Apollo Tyres (Rs 456, +0.65%) 

White Iris investment sold 2.85 crore shares worth Rs 1281 crore. Nippon India Mutual Fund picked up 1.2 crore worth of shares.

Bull case: Replacement demand is expected to drive volume growth. Stable commodity costs also provide a cushion. Premiumisation and focus on European markets are the next growth triggers.

Bear case: Foreign investors have reduced their stake in the company. Poor sales growth and low return ratios a concern. High capex requirement as competition intensifies while pricing power remains weak.

Varun Beverages (Rs 1,174, +3.71%)

Announced the acquisition of ‘The Beverage Company (BevCo)’ in South Africa for Rs 1,320 crore. BevCo is the PepsiCo bottling partner for South Africa.

Bull case: South Africa is the largest soft drinks market in Africa. Besides, Varun Beverages' foray into energy drinks (Sting) and dairy products (Cream Bell) are expected to drive incremental growth.

Bear case: The stock has run up considerably, some analysts see limited room for upside. Promoter Jaipuria family has offloaded some stake over the past three years.

Technical corner

The BSE Consumer Durables Monthly Chart has recently broken out after a two-year consolidation patch and has been trading in a rising channel for nearly 14 years. Despite an intermediate correction, Kapil Shah, a technical analyst at Emkay Global, believes that the market appears to have found support in the moving average band, signaling a potential bullish continuation. Particularly, he recommends the Voltas scrip.

Shah notes that the stock has undergone three significant declines in the past decade, with each drop averaging around 42 percent. However, the most recent decline of 44 percent suggests that the downward trend may be coming to an end, based on the stock's historical performance.