Short Call | Year-end sell off may throw up bargains; Gensol, Navin Fluorine, Indigo, GAIL in focus

Making matters worse is the year ending as many investors clear their books of accounts.

Sentiment for small-cap stocks has taken a beating, with market regulator SEBI too saying there are enough signs of manipulation in the small and micro-cap segment.

Across the NSE’s three small-cap indices, nearly six stocks were down for every one that rose. Making matters worse is the year ending as many investors clear their books of accounts.

It is too early to call this trend reversal considering that liquidity flows are still strong, and the macro conditions too are favourable. For the brave investor, the ongoing turmoil may be a good time to look for bargains

Stock hovering close to 52-week low

Bear argument: Decline in revenues in the higher margin CDMO vertical during the December quarter, headwinds from lower demand and high pricing pressure along with lower operating leverage are worrying, said a note by brokerage house KR Choksey. Furthermore, the delays at the hydrofluoro olefins (HFOs) plant and no visibility on the incoming CEO are the other concerns. Stock is looking weak on the charts

Bull argument: Management expects a robust recovery in the second half of next fiscal, particularly for the CDMO and specialty chemicals segments. Valuations have cooled after the near 40 percent correction from the peak.

Co-founder Rakesh Gangwal sold 5.8 percent equity in the company.

Bull argument: Good demand for the stock from institutional investors as seen from the huge stake sale getting absorbed easily. Also, the stock flew high in a bearish market. The airline is adding capacity, and has a dominant market share. Stable fuel prices should help maintain margins.

Bear argument: Pratt & Whitney engine issues have grounded 20 percent of Indigo’s total fleet. That could impact revenues, especially in the seasonally strong April-June quarter.

The stock has fallen nearly 20 percent over the last month.

Bull argument: The company bagged an order for a 70 MW / 140 MWh out of 250 MW / 500 MWh standalone Battery Energy Storage Systems (BESS) project worth Rs 450 crore. Many of the leading names in the market have invested in the company.

Bear argument: Sentiment for the stock may remain weak because of the newsflow around Hari Shankar Tibrewala, whose assets has been frozen by the Enforcement Directorate. Zenith Multi Trading DMCC, one of the companies promoted by Tibrewal, owns a stake in Gensol Engineering.

Shares tumbled after broking firms CLSA and Jefferies rated the stock an underperform.

Bull argument: Analysts positive on the company’s commitment to green hydrogen through setting up of new plants as well as growth in the petchem segment. Analysts expect the company’s volume growth to sustain.

Bear argument: Growth in earnings and profit margins have been patchy.