SHORT CALL: WHEN BAD NEWS IS GOOD NEWS, BETTING ON POST-POLL CORRECTION, D-MART, GODFREY, KOTAK BANK, CDSL IN FOCUS

Investors in the US are cheering signs of a slowdown in the job market. The assumption here is that fewer job additions mean the economy is cooling down, and that will strengthen the case for a cut in interest rates by the US Federal Reserve. The S&P 500 and the Dow Jones index rose over 1 percent each and the Nasdaq jumped 2 percent. Low-interest rates are good for the economy, but investors seem to be overlooking the fact that few job additions also indicate a slowing economy. If fewer jobs are created, it means wages are unlikely to rise as fast as they have in the recent past. This has implications for consumers’ purchasing power and earnings of consumer-facing companies.

Chatter on the street is getting louder that BJP’s victory may not be as emphatic as widely expected till a couple of months back. This is leading some pundits to predict a 2004-like sell-off after the election results are announced. Social media channel X was abuzz over the weekend with many users saying they were eagerly looking forward to a correction to buy stocks on the cheap. But here lies the problem: if there are enough people expecting something, then that event does not materialise, both on the upside and downside. The lower circuit in 2004 post-election results and the upper circuit in 2009 after UPA’s surprise win both caught the market off guard.

Avenue Supermarts (Rs 4,618.45, flat)

Net profit surged 22 percent in the fourth quarter.

Bull argument: The company added 24 new stores in the quarter. Gross margins increased due to an increased mix of general merchandise and apparel (GM&A) share.

Bear argument: Valuations expensive at 118 times trailing earnings. Stock yet to cross peak of October 2021.

CDSL (Rs 2,081.9, flat)

The company reported a strong set of numbers for the March quarter, over the weekend.

Bull argument: Transaction, IPO and KRA/KYC charges drove revenue growth of 93 percent YoY. Q4 saw demat account additions of 10.9 million taking total accounts to 115.6 million. The company is diversifying revenue streams.

Bear argument: Expenses grew in line with revenues limiting margin expansion QoQ to just 13 basis points to 61.4 percent. A sharp correction in the stock market could slow down rate of account additions.

Kotak Mahindra Bank (Rs 1,550.30, -1.61%)

Reported a decent set of fourth-quarter numbers over the weekend. Net interest income rose 13 percent and net profit by 18 percent.

Bull argument: Stock among reasonably valued names in the private sector banking space following a prolonged underperformance. Operating performance has been consistent if not spectacular.

Bear argument: Analysts at Nuvama believe the recent developments, including the resignation of KVS Manian as major negatives. The recent RBI action could also weigh on growth over the next 12-18 months.  Kotak Mahindra Bank estimates Rs 300-450 profit-before-tax (PBT) impact in FY2025 because of the RBI directive.

Godfrey Phillips (Rs 3362.55, +2.2%)

Signed a deal with Ferrero India to distribute/resell its select sweet-packaged food products.

Bull argument: The company is targeting new cigarette markets, plus looking to increase the export of raw tobacco.  The company has more premium cigarettes in its portfolio and hence chances of downtrading are low.

Bear argument: Compounded sales growth in the last five years has been just 9 percent.

2024-05-06T02:24:10Z dg43tfdfdgfd