Short Call: All eyes on MPC, temporary oil relief, Som Distilleries, Navin Fluorine, Oberoi Realty in focus

short call

A rebound on Thursday yet again, but conviction level among players appears to be low, given the darkening clouds on the global horizon. Midcaps and small caps were under pressure in what appears to be a temporary retreat to safer havens (large caps). The RBI is expected to keep rates unchanged, but continue to sound hawkish.

Company is planning a qualified institutional placement (QIP) with the floor price at Rs 349.24. The stock has been a 10-bagger in the last 18 months and is showing no signs of fatigue yet. If the company is able to maintain its first quarter EPS for the rest of the year, that would be a 50-55 percent increase in earnings over last year, partly justifying the 47 times trailing PE multiple it is right now quoting at, after the eye-popping run up. Will be interesting to see if the supply of fresh shares arising from the QIP will act as a speed breaker in the medium term. At a time when most promoters have been trimming their stake, Som promoter JK Arora has been raising his stake every quarter since September 2021. Talk about getting high on your own supply.

Stock fell another 3 percent on Thursday, despite the management’s damage control measures over the exit of senior talent. Jefferies has downgraded its ratig on the stock to hold, slashed price target by 33 percent, cut operating profit estimates for this year and the next to factor a deferment in capex, and lowered forward price earning multiple from 40 to 30 to factor. The last one in particular is worth noting. The general view among market players is that high valuations can sustain if the outlook on growth is positive. But as the Navin Fluorine episode shows, high valuations also make a stock vulnerable to sharp falls if something goes wrong. When sentiment takes a beating, regaining confidence takes time. And there will be more such instances in other companies as well in the days ahead. Which means a longer wait for people who have got in at high valuations.

short call

Stock fell close to 3 percent on Thursday. F&O data indicates build up of short positions. The company has denied reports that its CMD Vikas Oberoi being charged with road homicide in the car crash incident in Italy are incorrect and said that no charges have been filed. Remains to be seen if bears are betting on this particular incident, or the stock was anyway ripe for a correction after a near 50 percent rally over the last 9 months. Momentum for the real estate sector remains strong, despite rising prices and high interest rates. Q2 business updates from Sobha and Macrotech have been decent and Prestige Estate is finding a supporter in CLSA.

Even as demand for luxury homes remains strong, the affordable housing market is not doing well, according to Ghulam Zia of Knight Frank. Affordability is a concern because of high prices and rising home loan rates is making matters worse.

Short positions in Vedanta in the securities lending and borrowing window have all but vanished and so have those in REC. Short positions in M&M Financial Services, AU Small Finance, Berger Paints and Jubilant Foodworks are steadily ticking higher.

JPMorgan’s Marko Kolanovic feels the S&P500 could be poised for a 20 percent sell-off. The fall may not be immediate though, and there could even be a 6-7 percent rally in the near term. But a recession is unavoidable if interest rates remain this high, he told CNBC. “The job market is still strong. But you are starting to see the stress in consumer loans, ” he said.

Futures traders have record sums riding on the outcome of the Federal Reserve’s November policy meeting, reports Bloomberg. Open interest in CME Group Inc.’s federal funds futures market for November contracts has climbed to nearly 600,000, the most in the market’s three-decade history. The record number represents $25 million at risk per basis-point change in the rate — and the popular bet is that the Fed may hike rates.

Crude oil prices have come off in the last few days, but Goldman Sachs feels the retreat may be short-lived. “We stick to our view that robust demand and elevated pricing power will allow OPEC to keep Brent in a $80-$105 a barrel range, and in particular to push Brent to $100 a barrel by next spring," the Goldman Sachs note said.

The US shale oil industry is in an extended wait-and-watch mode despite rising oil prices, reports oilprice.com. That is because the industry has changed its primary focus from production growth to capital discipline due to federal government policies and shareholder concerns.

The world’s number two miner BHP Group is focused on cutting costs to drive growth and is in no hurry to acquire assets, reports Reuters quoting a senior executive of the company. Lithium may be making more headlines than nickel, and holds the promise of more money as well. But BHP is not excited because it feels long-term lithium margins are not juicy enough. It is focussed on becoming the world’s number two nickel producer.