Short Call: Of hopes of brighter Q2 and blaze in Middle East; eye on Indian Hotels, Prestige Estates, Berger

The market will surely look at the positive side of things and start discounting the FY26 earnings.

"Don’t get involved in trying to figure out where a stock is going to sell. Just try to figure out what it’s worth." - Marty Whitman

Domestic institutions were big buyers on Monday as the market shed nearly 1 percent. Likely indicator that many domestic investors are viewing every decline as an opportunity to buy. Or, maybe, fund managers are just deploying the cash from profits they have been keeping in their portfolios. At this point, nobody seems to be too concerned about the war in the Middle East, or about anything else, for that matter. The common view is that the second quarter earnings will have more good news than bad news. And that even if the numbers are not all that good, the market will surely look at the positive side of things and start discounting the FY26 earnings.

Spoils of war

Adani Ports fell 5 percent on Monday as the Israel-Hamas war has affected operations at the Haifa Port in which Adani owns 70 percent. It's a buying opportunity, says CLSA, because Haifa’s contribution to Adani Ports overall volumes is barely 3 percent at this point. Of all Adani group stocks, this is the one that enjoys the best standing among institutional investors, because of the business as well as a steady operating performance amid the turmoil in the group.

Indian Hotels

If you are the leisure travelling types, then Indian Hotels boss Puneet Chhatwal is not the guy you would like to listen to. He continues to sound bullish on the prospects of the industry in general as demand continues to outpace supply. In other words, be ready to shell out more when you check into a hotel on your next holiday. The stock is up a little over 30 percent for 2023 so far, but the rally has slowed down since June. The rates jumped in double digits at the industry level in the September quarter, says Chhatwal. If prices continue to rise at this pace, it is likely that there will be a pushback from consumers at some point.  It is not just the room rates that are on the rise, food and transportation, too, have become expensive jacking up the overall cost.

Prestige Estates

The stock held ground in a bearish market on Monday. It has had a decent run so far in 2023, gaining nearly 50 percent and CLSA recently turned bullish on the stock. The company said it had a bumper second quarter, but cautioned that it would be difficult to replicate that in the remaining two quarters of this year. Prestige is on track to exceed the FY24 sales guidance. The stock has been among the laggards in the sector, barely doubling over the last five years. It remains to be seen if the market is ready to rerate it. Margins have been decent, but gross borrowings have more than doubled in the last couple of years.

Berger Paints

Short positions in the securities lending and borrowing window have crept up to around 2.1 million shares. The stock has tumbled 17 percent in the last three weeks after a spectacular rally. Rising crude prices have made investors cautious on paint stocks in general. The rapid rise in Berger’s price means there would be a lot of speculative build-up as well. This could further act as a deadweight on the stock in the short term.

Who knows?

US equity markets ended higher on Monday, led by gains in shares of defence contractors and energy firms. But it may not necessarily mean that the war in the Middle East has no implications at all for stock markets. “Equity markets are generally bad at pricing in big geopolitical events. It is not their wheelhouse,” Steve Sosnick, chief strategist at Interactive Brokers told WSJ. “It is hard to discern how these events have any real bearing on earnings, dividends, and cash flows broadly.”

Fertile ideas

Shares of fertiliser makers jumped after the Hamas’ surprise attack on Israel raised concerns over how the conflict could impact global supplies of nutrients used to grow crucial food crops, reports Bloomberg. Israel’s Port of Ashdod, just north of Gaza and a key hub for the country’s potash fertiliser exports, is in emergency mode amid the deadly conflict, putting as much as 3 percent of global potash supply at risk, Ben Isaacson, a Scotiabank analyst, said in a note Monday. More trouble ahead if Iran directly enters the conflict, as it is a key nitrogen exporter.

Don’t worry

Investment bank Goldman Sachs says there will be no immediate major effect on near-term oil market inventories related to the terrorist attacks on Israel on Friday. But the attacks lower the likelihood of normalisation of Israel's relations with Saudi Arabia, which would likely have boosted Saudi production over time, the note added. The investment bank has retained its $100/barrel crude price target by June 2024.

All clear

Russia has lifted the ban on most of its diesel exports, two weeks after announcing export restrictions on diesel and gasoline to curb soaring domestic prices, reports Oilprice.com. Russian pipeline operator Transneft resumed this weekend diesel exports from sea ports after Moscow conditionally allowed late last week the seaborne exports of diesel.

About turn

Ganfeng Lithium, China’s top lithium company said on Monday that a company that it had invested in to explore for lithium in the Xinjiang region is shutting down after finding no suitable projects to develop, reports Reuters. The arm, Xinkuang Ganfeng Lithium was established last year for mining exploration but never started operations and is “in the process of deregistering”.