Short Call: Crude oil cheer; higher for longer mantra; what's powering REC & PFC; Siemens, TCS in focus

The chances of getting there before year-end are high.

“When people want to give something away at a ridiculous price because they have to, not because they want to, that's a good time to buy.” -- Seth Klarman

The market seems to be suffering an overdose of good news at the moment. The latest is the steep fall in crude oil prices. Stock valuations are not a talking point for the time being. Inflows into small and midcap schemes of mutual funds remain robust. Operators are busy ramping up their favourite stocks. Everything appears to be fine. This is also the time to be the most watchful.

Value unlocking
Siemens India shares have been rising for the last couple of sessions on news of parent Siemens AG looking to acquire an 18 percent stake in Siemens India from Siemens Energy, and Siemens India’s energy business being spun off. The restructuring is proposed to be completed in 2025. No game changer in the short term. Stock has already had a handsome run up and valuations are looking rich. But this could drive a longer term rerating.
Analysts at Prabhudas Liladher see this corporate rejig as a positive and a way to streamline the India business (from a mix of product and turnkey) and give some valuation catch up headroom as it will become more product-focused business. This demerger will also help by tackling the profitability challenges on Siemens India due to Siemens Energy losses.

Higher for longer
If think capital goods stocks are expensive, take a leaf out of central bankers’ books. The ‘higher for longer’ phrase used by central banks for interest rates could be applicable to valuations of capital goods stocks, according to Hiren Ved, Director and CIO of Alchemy Capital Management. He reasoned that the investors need to believe the upcycle for those stocks will continue and valuation multiples will keep correcting itself as earnings grow. He pointed out ABB India, a not so cheap stock, has delivered strong results in the last 2 quarters.

Short Call

Trickle down effect?
Power lenders like REC and PFC have been reaping the benefits of the rapid growth in power demand over the last few years. Harshvardhan Dole of IIFL says that the outlook for power demand is expected to continue for the next few quarters. A section of analysts are skeptical of whether the benefits of growing power consumption will reach the lenders in the long run, but Dole seems optimistic. Over the last quarter, both REC and PFC turned in a decent operating performance.

Shot in the arm
Dr Reddys shares rose 2 percent on Thursday. The pharma major has launched a wearable migraine management device in India, marking its entry into digital therapeutics. This segment is turning out to be the emerging battleground for pharma companies. Rival Lupin too is is expanding aggressively in the digital therapeutics area. As for Dr Reddy’s, the street’s excitement over the booster from Revlimid sales appears to be fading. Pharma in general not a hot story at the moment.

TCS
TCS has set November 25 as the record date for its fifth share buyback in six years. This move, reflecting management confidence, could give a short term bump up to TCS shares in the short term even as concerns about slower discretionary spending in the US and Europe could limit big upsides.
The buyback rate of Rs 4,150 is 18 percent above Thursday’s closing price of Rs 3,498.

Breakout song
For all the concerns about a slowing US economy, some technical analysts feel Nifty IT is on the cusp of a technical breakout, with heavy long build-up in stocks like Coforge, HCL Tech, Tech Mahindra, and Infosys in the derivatives segment. Also, stocks like Mphasis, TCS, Birla Soft, LTIM, Persistent, and Wipro show short covering, indicating a bullish stance. The recent 33 percent correction suggests a potential rebound. On the weekly chart, there's a breakout from an 80-week consolidation patch, resembling a double bottom pattern. Additionally, seasonal data points to November as a good month, and December as the best, making it opportune to accumulate the IT index during recent weakness to ride the upcoming positive seasonal trend.

(With contributions from Anishaa, Ananthu, Yash, Srushti and Sucheta)