Short Call: Tech is back and its hungry! US inflation's icing on the cake; Airtel, P&G, Gujarat Gas in focus

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IT stocks have been down in the dumps ever since the pandemic pulled the brakes on corporate spending. Once the laggard of the market, the tech sector is now gearing up for a comeback—big time! IT stocks are catching the scent of opportunity, and investors are sharpening their claws, ready to pounce. So, what’s driving this sudden surge of excitement?

First up, the US Fed’s likely rate cut in just over two weeks—a game-changer that has investors buzzing. And let’s not forget valuations; beaten down since Covid, IT stocks are now flashing ‘buy’ signals, with analysts pointing to an attractive value play. The index has already clocked five consecutive days in the green, but this rally is likely just getting started.

The US Personal Consumption Expenditures (PCE) price index, the Fed's go-to inflation measure, inched up from 0.1 percent in June to 0.2 percent in July, holding steady at 2.5 percent year-over-year. With the stable annual inflation, the Nifty's winning streak might just get the fuel it needs to power ahead for a 13th straight session.

In the upcoming week, keep an eye on the activities of FIIs and DIIs. Foreign institutional investors turning into net buyers in the equity cash segment in 2024, could also bolster sentiment. This shift could offer significant support, potentially driving the market to new record highs. Meanwhile, domestic institutional investors chose to cash in on recent gains, taking profits at elevated levels.

Bharti Airtel (Rs 1,589, +1.5%)

The stock rose in anticipation of some relief as the Supreme Court took up the curative petitions filed by Bharti Airtel and Vodafone Idea in the Adjusted Gross Revenue (AGR) case.

Bull case: Tariff hikes, 5G rollout and continued market share expansion to support growth. Bernstein also expects Bharti Airtel to benefit from a favourable market structure for the telecom industry, driven by the consolidation over the years.

Bear case: Higher market share gains by rival Jio and a revival of Vodafone Idea and BSNL may increase competition and derail growth trajectory.

Gujarat Gas (Rs 605.5, 0.5%)

The board of Gujarat Gas approved a scheme of arrangement, involving Gujarat State Petroleum Corporation, GSPC Energy, and Gujarat State Petronet merging into Gujarat Gas.

Bull Case: Gujarat Gas will benefit from being the second-largest gas trading firm in India. Its advantage will come from increasing gas consumption and a strong presence across the entire value chain.

Bear Case: According to Emkay Global, some of the challenges the merged entity will likely face are the complexity of business with global gas exposure, capital allocation, and numerous Gujarat govt entities still holding sizable stake.

P&G Health

(CMP: Rs 5,193, -0.5%)

Muted Q4FY24 earnings

Bull case: Analysts at Motilal Oswal believe that two things make P&G Health an attractive long-term holding: robust growth potential in the feminine hygiene segment and potential for higher margin gains from the long-term trend of premiumisation in the feminine hygiene segment.

Bear case: The stock trades at an expensive valuation of 62x/54x FY25E/ FY26E P/E and lack of any medium-term triggers does not bode well for the stock. Moreover, tepid Q4 earnings due to higher ad spends and 12-quarter low margins also contributes to the negative sentiment.

(With inputs from Vaibhavi, Lovish, and Zoya)

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