Short Call: All things pointing towards a rally; Inflation dancing on RBI's beat; Nykaa, Zomato, Kalyan Jewellers in focus

Short Call

Following a weak start to September, the bulls have returned to the Street and plan to stay here for long. Yesterday, the NSE Nifty 50 and the Sensex were quick to clinch fresh record highs.

That's because a host of factors are nicely poised for India. A drop in crude prices to the lowest levels, retail inflation staying comfortably lower than RBI's 4 percent mark, and arguably the most important - the US Fed cutting interest rates in a first since Covid turned the world upside down!

The word on the Street is that the rally is broad-based, with midcaps and small caps also thriving. In a robust economy with a vibrant primary market, investors are exploring opportunities across all market cap segments, as evidenced by numerous stocks reaching all-time and 52-week highs.

An important point to note is that only 128 firms out of 4,229 on the Bombay Stock Exchange hit all-time highs as the Sensex surged over 1,400 points amid short covering following a global market recovery. Among these, 29 firms are from Group A and 26 from Group B, with the remaining 73 from M, MT, T, XT, and Z categories.

Even as everyone believes that overall valuations are elevated, the secret to making money is by swiftly churning one's portfolio to pockets of relative value.

Zomato (Rs 283, +4.25%)

Stock surged to a fresh record high after UBS reaffirmed 'buy' rating on the stock.

Bull Case: With just around 20 million monthly transacting users, the company has vast potential for customer acquisition and revenue growth in India’s expanding food services industry. Blinkit’s market leadership in quick commerce positions Zomato for strong margin improvements and sustained long-term growth.

Bear Case: The food aggregator faces risks from increased competition and slower-than-expected market growth. Regulatory challenges and adverse rules for platform businesses could hinder growth, while new entrants in both food delivery and quick commerce may erode market share and margins.

FSN E-Commerce Ventures (Rs 207, -2%)

Over the past three months, the stock's 34 percent surge has led to a downgrade to 'Sell' from 'Add' by Kotak Institutional Equities. The brokerage also slashed the stock's target price to Rs 190 from Rs 195.

Bull Case: Nykaa's wider assortment, content-based marketing, and increasing personalisation help counter quick commerce competition. Same-day or next-day delivery extended to 63 cities. The company has a stock-keeping unit (SKU) count of around 76,000 across key categories like cosmetics, skincare, and haircare. Nykaa's platform has a significantly larger product range despite rising quick commerce competition.

Bear Case: Fulfillment costs are expected to rise due to the push for quicker deliveries. EBITDA estimates were trimmed by 3-7 percent for FY25-27 due to lower margins in beauty and personal care (BPC). EPS estimates were cut by 7-11 percent for FY25-27 due to increased fulfilment and infrastructure costs. Quicker delivery may require warehouse restructuring or reliance on third parties, adding cost pressures.

Kalyan Jewellers (Rs 689.30, +5%)

Shares rose after HSBC raised its price target.

Bull case: Sustained growth momentum. Asset-light expansion, which continues rapidly along with valuations that sit at discounted levels as compared to rival Titan, improves prospects, writes HSBC.

Bear case: A spike in gold prices may dent demand and derail the company’s margin profile and earnings growth.

(With inputs from Harshita, Vaibhavi, and Neeshita)