“The basic premise of what really is a fair deal is a deal where everybody makes money, both the sponsor and the stockholder. That is what it is all about.” - Sam Zell
As the events over the last three weeks show, it does not take much for sentiment or liquidity to change overnight. Previously the talk was centered around fundamentals and the abundant liquidity in the system. Now the focus is on technical levels, and where the next support for the Nifty would be. If the situation was not euphoric till last month, then it does not appear dire right now, despite the 25-40 percent correction in many mid and small stocks. Confidence has been shaken for sure, but then there have been many such corrections during the bull run of the last four years.
Emkay Global’s Lead Economist Madhavi Vora is betting on a scenario where the US Fed may not cut rates this year as it enters the last lap of its fight against inflation. This means other central banks, including the RBI are likely to stay put as well. But is not all gloom, she adds.
“…unless it is accompanied by immediate negative growth shocks, we don’t see a crash in emerging market risk assets, and believe that the cherry-picking theme will work well for Indian assets,” she writes in a note to clients.
PSU stocks
The star performers of the market over the last year, PSU stocks too have taken a drubbing in the recent market meltdown. That has triggered debate on whether the re-rating story has been done with.
Bull argument: Note value investor Ramesh Damani, also a long-standing bull on PSU stocks feels the stock still has steam left. “The PSU sector will continue to lift the market higher due to capital expenditure, improved corporate governance, and reasonable valuations for most PSU stocks,” he said at Network 18’s Rising Bharat Summit. He added that the government would privatise a few assets and the broader focus would be on reducing corruption, and improving corporate governance.
Bear argument: PSUs have always lagged the broader universe on accounting due to higher-off balance sheet risks, possible delays in commissioning of new assets, and volatile cash conversion, wrote Ambit analyst Vinit Powle in a note earlier this month.
“Moreover, PSUs continue to be audited by relatively non-descript auditors. Also, PSUs fail to impress us on drivers of return on capital employed (RoCE) expansion. recent improvement in financial performance should not overshadow these accounting and capital allocation risks,” the note said.
LT Foods (Rs 167.5,-1.67%)
Abakkus Asset Managers bought 30 lakh shares in LT Foods
Bull argument: Basmati rice is a barrier-to-entry business where it is only grown in India and Pakistan. The company has a 50 percent market share in US and a 30 percent market share in India. The company is investing in power generation, warehousing, and capacity expansion to enhance operations, says BNP Paribas.
Bear argument: The Red Sea disruption is impacting the cost of transport and the actual impact in Q1FY25 would be around Rs 4 crore, as per the management. Low growth in organic business due to anti-dumping duties in the US.
(With contributions from Srushti and Anishaa)
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