Strong macros as saviours, soaring US yields worry, IEX, Siemens, RBL Bank in focus

Will India’s strong macroeconomic fundamentals come to the market’s rescue?

Most financial principles and theories have a degree of good sense to them, but never come close to being absolute.” ~ Fred Schwed Jr

The market recouped a good chunk of the intra-day losses, and for many, it could be a validation of the theory that strong macro fundamentals will help India fare better than most global markets. Giving further ammo to the bulls is the drop in crude oil prices. Also, the market being able to withstand around Rs 4400 crore of net selling by foreign funds. Domestic liquidity remains strong.

IEX
September total electricity volume came in at 9147 million units, up 13 percent over last year and up 7 percent over August. But average clearing price came in lower at Rs 6.23 per unit compared to Rs 6.89 per unit for August. The impending market coupling proposed by the electricity is what has held back investors from chasing the stock even as every other stock remotely related to the power sector has been on a tear. One key argument against market coupling is that it will kill innovation, something even the consultation power has mentioned, IEX boss SN Goel told CNBCTV18 recently. But the market’s thinking right now is that expected consumer benefits could play a bigger role in the final decision.

RBL Bank

Second quarter gross advances up 21 percent year-on-year and total deposits up 13 percent. Stock has been among the stellar performers in the sector, and making headlines because of investors like Zerodha’s Nithin Kamath and the M&M group picking up stakes. How much of the good news is factored in? Motilal Oswal has raised estimated earnings for FY25, and sees net profit growing at a compounded rate of 38 percent for the next couple of years, as new businesses achieve breakeven and asset mix gets better. Return on Asset is expected to improve to 1.2 and Return on Equity to 11 percent by FY25. And yet for all the rosy projections, Motilal Oswal has rated the stock a neutral with a price target of Rs 240, not much far from where it is right now.

short call

Siemens

Stock fell 2 percent on Wednesday. F&O data indicates build up of short positions. Next to banking, capex is the theme that fund managers and traders are kicked up about. The stock has been struggling for the last couple of months after hitting a peak of Rs 4000 in late July. The management had recently cautioned about pressure on margins because of rising competition, but at the same time said that capacity utilisation in the country was around 75 percent. So far most of the heavy lifting on capex has been done by the central government. It is when capacity utilisation nears 80 percent that private players start investing in a big way. Complaints about anti-shareholder attitude appears to be a thing of the past.

Ramkrishna Forgings

Is planning to raise Rs 1000 crore through a qualified institutional placement. Promoter stake sales have been making headlines, but fund raising by companies through share sales for legitimate reasons is also adding to the supply in the system.

Go slow

A pleasant change to see a research report talking about the risk factors related to a railway stock, and that too one of the best performers in the pack.

Antique Stock Broking has a hold rating on Rail Vikas Nigam with a price target of Rs 159, and says the order from Kyrgyzstan Rail will be key for further upsides.

From the report:

“Risks include cancellation or delay in conversion of international orders. Further, delays in execution of domestic orders. Margin could be lower than what it has achieved in the past.”

This time is same!

Hotel stocks have been consolidating of late, causing some to wonder if the cycle is close to peaking. Those who have bet on hotel stocks in the previous cycles have reason to be wary, as it is hard to figure when the boom has ended. Analysts at Emkay feel the party may have just begun.

From the Emkay report

“Any past periods of elevated occupancy have generally lasted for some time (5-6 years); this time around too, we expect the elevated occupancy to sustain for a few years, driven by rising demand and limited supply.”
All things considered, the hospitality industry at this point seems to be as safe as the defence or railways sector. Occupancy levels are high and so too are room rates. But cynics of the sector point out that bulls are ignoring the fact that room rates have risen too fast, and that at some point, supply will start coming in faster than expected as hotel managements are only too aware that the industry is cyclical and will try to cash in when the going is good.

Soft landing

Rising US bond yields—which means higher borrowing costs—is leading many to believe that a soft landing of the economy cannot be taken for granted. But it is the sudden rise in yields that is perplexing most investors. One theory is that the yields are rising because demand is weak from both foreign and local money managers.

From WSJ:

“No fundamental explanation is convincing,” said Daleep Singh, an ex-Fed executive and now chief global economist at PGIM Fixed Income.

Copper bears

Bearish bets on copper are on the rise with outright short positions in CME copper contracts rising to 77,276 contracts in the week to Sept. 26, reports Reuters. It’s the largest accumulation of bear bets since March 2020, when copper and the rest of the base metals complex were reeling from the first impact of Covid-19 restrictions.

Control your dreams

Tech start up Prophetic is creating what’s billed as the “world’s first wearable device for stabilizing lucid dreams,” reports CNBC. Lucid dreaming has fascinated the public and the neuroscience community alike for decades, spawning references across pop culture, from films like “The Matrix” and “Inception,” to a Reddit community (r/LucidDreaming) with more than 500,000 members.