Short Call: Lemon Tree, Delta Corp, Delhivery, options time bomb, bank crisis, China, copper

The focus now will shift to IT stocks for the next couple of sessions as TCS and Infosys report their quarterly numbers.

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26 Aug, 2025 12:21

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“Almost everybody has the brain to make money in the stock market. Question is: do you have the stomach for it and are ready for a bit of work?” ~ Peter Lynch

Indices rose for the seventh day in a row, the longest winning streak in a while. And yet a sense of cautious optimism prevails. Dealers say trading volumes continue to be low and it is difficult to execute decent-sized orders without causing sharp price swings. The focus now will shift to IT stocks for the next couple of sessions as TCS and Infosys report their quarterly numbers.

Lemon Tree

The company has signed franchise agreements for two hotels in Nepal, for a total of 183 rooms. This is the fourth such announcement from the Lemon Tree hotel chain in less than a month after having added rooms in Bengaluru, Kerala and Rajasthan. But the stock price has been unmoved. That has been pretty much the case with all hotel stocks despite the managements forecasting higher room rates and strong demand. Hospitality sector bulls say the stocks are in consolidation phase ahead of a steady rise. Bears like Aniket Krishna disagree. “These businesses have the optical illusion of free cash flow,” Krishna tweets. “They come in on a quarterly basis tempting the investor. But through cycle they turn into maintenance capex right before your eyes. The market knows this only too well.” Read his full note here:

Delhivery

Internet Fund III sold 1.18 crore shares at an average price of Rs 330 on Tuesday, the second major sale by the venture capital fund after the 55 lakh shares offloaded less than a month. No disclosure both times on who the buyers were, indicating that it could be a group of high net worth individuals (HNIs) accumulating the stock. Delhivery has not recovered from the sell-off after profit warning in October, despite a few leading broking firms turning bullish on the stock. The steady supply of shares from long term investors is not helping matters. Operating losses have been narrowing, but valuations remain pricey relative to some of the older names in the sector.

Delta Corp

A disappointing set of fourth quarter numbers, with a steep fall in operating margin, revenue and bottom line quarter-on-quarter. A long-time favourite of the late Rakesh Jhunjhunwala, the stock has been rolling downhill after the legendary investor sold his entire stock in the June quarter last year. Delta Corp is one of those instances in the market where the presence of many shrewd investors did nothing for the stock price. Almost all of them exited the stock without having much to show for. The uncertainty over GST rates for casinos and online gaming means potential buyers won’t be in a hurry to double down on their bets on Delta anytime soon.

Banking crisis

Is the worst of the banking turmoil in the US behind? The debate continues.

“We are concerned about what we have seen in the banking sector, particularly in the US, but maybe also in other countries, might do to growth in 2023,” IMF’s chief economist Pierre-Olivier Gourinchas told CNBC. He says banks worldwide are likely to be prudent and cut back on lending, which in turn will cramp economic growth.

Renowned economist Nouriel Roubini’s prediction is direr; he sees more banks getting into trouble soon. His reasoning is that the banks will go from market (interest rate) risk to credit risk. As rates rise and credit gets tighter, there will be a recession, and hence more non-performing loans and defaults, he told CNBC-TV18.

Option sellers

Option selling is a rage among traders as can be seen from the explosive growth in option contracts volumes on the NSE over the last couple of years. This has been the case in the US market as well. There could be trouble looming, warns derivatives trader and blogger Kirubakaran Rajendra.

“A big trending intraday move usually occurred frequently every month, but now such a significant move has gone down. Intraday trend followers must have suffered and would have not made good returns in recent years due to the rise in option sellers who arrested such big trending moves,” Kirubakaran writes in his blog. However, option writers could be getting blindsided by the easy returns and not factoring for a black swan event. And the massive amount of option will have implications for the system as a whole if many of these traders are wiped out by a sharper than usual move in the Nifty. Read full piece here:

Skymet vs IMD

A day after Skymet forecast that monsoon would be below normal, the Indian Meteorological Department (IMD) has said that monsoon is likely to be normal. However, IMD has warned that the El Nino impact is likely to be felt during the second half of the monsoon. This seems to fit with what the Skymet has predicted: monsoon will be weaker heading into August.

Copper

Forecasts of record prices by leading US banks notwithstanding, copper prices have been range-bound over the last few weeks. The price of copper is largely a reflection of the health of the global economy because of its widespread applications in a wide range of industries.

From oilprice.com:

“Traders and investors continue to closely monitor the market for any signs of a breakout in either direction. As prices trade sideways, the copper market remains caught between worsening economic conditions in the West and a long-term bull narrative fuelled by projected supply shortages.”

China

China inflation eased for the second straight month March even as the economy shows signs of a recovery. Consumer prices inched up just 0.7 percent, the lowest rate of inflation since September 2021. Most investors were betting that strong demand from China would keep the global economy’ growth engines humming. That’s not turning out to be the case.

From the Wall Street Journal:

“Part of the reason is weakness in the labour market, which tends to keep a lid on price growth. Unemployment in China is stubbornly high—especially among young people—with just over 18% of those aged 16 to 24 out of work in February. But it might also suggest that domestic spending isn’t yet delivering as potent a revival as was hoped.”