Earnings of most corporations pass through a life cycle which, like the human cycle, has three important phases -- growth, maturity, and decadence -- T. Rowe Price
Benchmarks Sensex and Nifty made record highs on Friday. This could perhaps be an indication that smart investors may be switching loyalties to large caps, where valuations look attractive when compared to mid and small caps. Also, corporate governance issues in small caps making headlines is bound to make a section of investors wary of chasing lesser known names. Players who have seen multiple market cycles will only know too well that the best time to book profits in small cap is when retail investors are excited about them. And as the inflows into small cap schemes show, retail enthusiasm for these stocks is quite high.
Polycab (Rs 3981, + 2.64%)
Stock rose 2 percent on Friday after crashing 21 percent in the previous session.
Bull argument: Stocks have managed to shake off raids by government agencies as long as fundamentals are sound. Polycab has a solid track record, and the business outlook is positive. Company says it has not received any notice from the I-T department.
Bear argument: Friday’s bounce the result of short covering. Fund managers have turned cautious and would like to wait for some clarity. If the charges of not recognising revenue in books is true, street may question if the stock deserves premium valuations.
HCL Tech (Rs 1,553.90, +4.65%)
The stock rallied ahead of results. After market hours, HCL Tech reported a beat on topline, bottomline on back of its products business.
Bull argument: Well diversified revenue streams and less exposure to BFSI. Management is betting big on GenAI and has already signed 30 deals in the segment.
Bear argument: Valuation on par with that of Infosys, so investors might flock towards the latter
GAIL (Rs 162.3, +2%)
Stock up 50 percent in the last six months on strong financial performance driven by improvement in the pipeline regulatory environment and favourable pricing in the marketing segment.
Bull argument: Company executing 70 projects worth Rs 450 billion over four–five years across businesses. That would add 10-15mmscmd of incremental transmission volumes to 132mmscmd by FY25.
Bear argument: Most of the positives discounted. Analysts expect petrochemical projects to likely generate low double-digit returns. Earnings upside and LPG profitability are capped in the near term due to adverse changes in Henry Hub and crude prices.
Tata Consumers (Rs 1159, +3.55%)
Tata Consumers reported to be in talks to acquire Capital Foods and Organic India.
Bull argument: Tata Consumer Products is rapidly scaling up its distribution network. It is moving from salt business and focussing more on Sampann, Soulfull, and ready-to-eat brands like Smartfoodz.
Bear view: Company is losing market share to small players in tea business. Gross margins have contracted in the October-to-December quarter due to increasing contribution of Sampann business, where margins are lower compared as compared to tea.
Macrotech Developers (Rs 1,201, + 6%)
Shares climbed to a record high on Friday.
Bull argument: Jefferies has rated the stock a buy. Macrotech’s large 4,300 + acre land bank in city outskirts well-placed to benefit from the newly opened Trans Harbour Link
Bear argument: Stock price has tripled in less than a year. Valuations discounting most positives. If interest rates stay high, demand for residential property could be hit.
(With inputs from Shailaja, Yash, Anishaa and Srushti)
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