Short Call | Small caps melt as HNIs, retail panic; Jet Airways may crash land, AB Capital, Aurobindo, Zomato in focus

Short call

"The stock market is the only market where things go on sale and all the customers run out of the store...." - Cullen Roche

The above psychology is on full display as mid, small and micro-cap stocks took a pounding for the second successive day. If SIP flows continue to pour into small and midcap schemes of mutual funds at the same pace as before, and existing investors don’t panic, then stock prices could stabilise shortly. For the moment, the nervousness among retail investors and high networth individuals is palpable. Storied small-cap names till a couple of weeks back are being bracketed along with the stocks associated with Dubai-based hawala operator Hari Shankar Tibrewala. The same promoters who were being praised by one group of investors are now being viciously trolled on social media by another group of investors who were always skeptical of the company’s business model.

Jet Airways (Rs 43, + 5%)

The NCLAT has upheld the troubled airlines resolution plan and transfer of ownership to the Jalan Kalrock Consortium. The market is interpreting this as a sign that the stock price will get rerated now that a new owner is in place.

Bear argument: Ordinary shareholders will get all but wiped out under the new resolution plan in which the Jalan Kalrock Consortium will end up owning 99 percent of the equity, says Sudarshan Bhandari, co-founder, Beat The Street, an independent research firm. “Because of the restructuring of the share capital, shareholders previously owning 100 shares will be left with just one share,” said Bhandari. And no, this is not like a stock spit where the face value of the stock reduces, but the value of your holdings remains the same.

“If you previously had 100 shares at Rs 50 each, you will now have 1 share of Rs 50. In effect, you have paid Rs 5000 for one share,” he said.

Bull argument: None for the public shareholders though the business may see a turnaround. “Unless you are patient enough and confident that the stock price can rise 100-fold from these levels, it makes little sense to own the stock.”

Short Call

Indiamart Intermesh (Rs 2,620, +2.85%)

Jefferies has rated the stock a ‘buy’ with a target price of Rs 3400.

Bull argument: Jefferies expects paid subscriber additions will grow from 3000 per quarter in FY24E to 6,000 per quarter in FY25E.

Bear argument: Company’s net profit declined 27 percent in Q3 results. Weak paying supplier addition would hurt collections for the company.

Aditya Birla Capital (Rs 183.70 , +2 %)

Shares gained a day after the board of directors of Aditya Birla Capital Limited approved the merger of Aditya Birla Finance Ltd with itself.

Bull argument: Analysts believe that the merger will be positive for the holding company in terms of a simplified structure, elimination of holding company discount and increased Capital Adequacy Ratio.

Bear argument: With RBI keen to put the brakes of unsecured lending and looking to curb NBFC funds flowing into the stock market, outlook for the sector in general is gloomy at this point.

Aurobindo Pharma (Rs 1048, -1.57%)

Aurobindo Pharma's subsidiary received approval from World Health Organization for Goods Manufacturing Practices.

Bull argument: The company has been witnessing strong growth in the U.S, driven by gRevlimid-led injectable portfolio and an improvement in the base business. It has a strong pipeline of 40 products over the next 12 months.

Bear argument: After the USFDA inspection, the company closed product lines of its Subsidiary Unit 3 which is expected to cost $20 million per month. The shutdown will impact Aurobindo Pharma's sales and there is no surety of the lines opening in early FY25, say analysts.

Zomato (Rs 157, +1.4%)

The stock gained after HSBC retained its “buy” call and raised the target price on Zomato from Rs 163 to Rs 200.

Bull argument: The company’s food delivery segment is profitable and market experts expect Blinkit to turn self-sustainable over the next 2 quarters.

Bear argument: According to reports, Flipkart is expected to launch a 10–15-minute delivery in at least a dozen cities in the next six to eight weeks. The move may affect Blinkit. Zomato’s Q4 growth is expected to be moderate compared to Q3 due to a higher base effect.

(With inputs from Ananthu, Anishaa, Yash and Srushti)