- 9/15/2023
Trade Setup | Small and midcaps higher, but largecaps not a case for leveraged shorts just yet. #BQLive @_nirajshah
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00:00 Good morning and thanks so much for tuning into the Trade Setup. I'm Neeraj Shah. Let's
00:05 take stock of the global news flow first. The world markets are a happy place. European
00:09 stocks gained after ECB's dovish hike. And of course, the euro slid to the lowest since
00:14 March on the view that the ECB's done hiking. US stocks rallied after the US retail sales
00:19 beat estimates. Well, it led a bunch of global media to say that the Fed might be able to
00:27 engineer a soft lending while keeping the rates higher. And in interesting changes,
00:36 Subway has launched a first ever three inch sandwich in Pakistan to tackle inflation pressures.
00:40 Could this be a sign of things to come? Could we see more such stuff from not just Subway,
00:44 from other players across the world? Remains to be seen. Nevertheless, like I said, the
00:48 markets did okay. US stocks were in the green. European stocks were in the green. US stocks
00:54 were in the green, about a percent or close to a percent, so not bad. The other markets
00:59 were also in the green. And the other indicators, the 10-year yield at 4.28, so sub 4.3, steady
01:06 at those levels. Dollar index has inched up a little bit. Like I said, the euro slid to
01:12 the lowest level versus the dollar. The volatility index in the US came off a little bit. The
01:17 gift nifty, for whatever it's worth, for now, indicating a start which is in the green.
01:23 Let's see, or flattish actually. Let's see if indeed that is what happens. In fact, what
01:28 happened yesterday is also interesting. Yet another day of the large caps remaining stable
01:33 for the broader market shooting up. Nifty 50, 33 points, ending at 2.0103. The bank
01:40 nifty had increased by 0.2 percent, close at 46,000 odd. The nifty mid-cap 100 though,
01:47 in the nifty small-cap 100, gained quite strongly, 1.17, 1.131 percent. And the PSU bank index
01:54 was the top gainer, followed by nifty metal. Now, that may have a bit of an issue today,
01:59 but I'll come to that in a moment too. But just saying that commodities are getting bought
02:04 into. Now, what's the trade set up there for? Well, smiths are definitely higher, which
02:08 is the small and mid-cap indices, but the large caps are not a case for leverage shorts
02:13 just as yet. Passive fund buying could help the bank nifty today, courtesy HDFC Bank,
02:19 but the impact is not easily discernible. Now, just take a moment here, because of the
02:25 FTSE buying or the Sensex rebalancing, so on and so forth, and multiple impacts likely
02:29 in the second half of trade. Can we see some bit of an impact in the second half or can
02:34 people discount that and start buying that in the first half, particularly HDFC Bank,
02:39 but some of the others? Can that help the bank nifty and thereby the nifty? Well, remains
02:44 to be seen. Remember, it's the heaviest weightage on the indices. So, like I said, there will
02:51 potentially be an impact. What quantum of an impact will be seen remains to be seen.
02:56 PSU banks are getting bought at every dip, so that's naturally a trade that people should
03:01 watch out for, but also watch out for commodity stocks. Yesterday, for example, you saw what
03:06 sugar did, right? A rise in sugar prices, sugar stocks went through the roof yesterday.
03:11 Metals yet again got bought into. Now, today is a different kettle of fish because coking
03:15 call prices rising and contribute such a large portion to the overall production cost that
03:21 could impact the steel stocks remains to be seen. But as news reports have it, and I don't
03:27 have individual confirmation, but apparently prices have been increased by some of the
03:31 steel companies yet again. So, you know, anybody's guess as to the margin impact, I think a metal
03:37 company itself can tell us the best. But for now, the point I'm trying to make is that
03:42 commodity stocks, whenever there is a bit of a rise, are seeing some bit of an uptick
03:47 and you've got to be mindful about that. But broader markets are expensive. Chris Wood
03:52 in his weekly column also writes about Indian mid caps as well, saying that there is clearly
04:02 room for a correction in the mid cap area, most particularly as a continuing rise in
04:08 the oil price as the potential to create some renewed inflationary noise in India, just
04:13 as it does in the developed world. Still, by historical standards, valuations for the
04:17 big cap stocks are not particularly extended. Now, this, you know, this has two effects.
04:25 One, we know that a lot of mid caps and small caps are actually rising not because of global
04:30 money, which reads Chris Wood's notes and acts upon it even more strongly than the Indian
04:36 money managers, I would presume Indian managers because they're entrenched, would essentially
04:41 look at their own bottom up research in a meaningful way and form their opinion on the
04:44 mid caps and the small caps. And they will not be blanket avoidance because, as we said
04:49 in the mutual fund show this week as well, the quantum of money coming into mid caps
04:53 and small cap funds is so large. And that money has only one place to go by definition
04:58 and by the rule into the mid caps and small caps. So you see that activity being very,
05:02 very heightened. And that's why these stocks continue to rise and shine. Even in yesterday's
05:07 session, as I said, about a percent, percent and a half for the mid caps and the small
05:11 caps, you know, sometime on Monday, rather, we'll do the study of what the mid caps and
05:16 the small cap stocks have done on trade set up itself have done relative to large caps
05:23 in the last three months. I did some bit of it about two weeks ago. But what we'll do
05:27 is try and do an extended assimilation of what some of the mutual names also have done.
05:34 So watch out. We will try and do that for sure. OK, and IPO opens today. Yatra online
05:40 will raise about 775 crores spread over five days because there are holidays in between.
05:45 Price band at 135 to 142 has raised about 348 crores from 33 anchor investors. It's
05:50 coming at a good time when the season seems to be very, very strong for tourism and we
05:55 hitting the festive season. Right. Ganpati ji coming next week. So in some sense, it's
06:02 an official start of the festive season, if you will, and therefore very keenly watching
06:06 out for what the subscription to Yatra looks like as well.
06:11 Stocks to watch. It's not a very long laundry list, but I'll put out some at least. So first,
06:16 the set of liquid movers and which did well and see commodities out here as well. NMDC,
06:21 Balram Puccini did really well in trade yesterday. Interestingly, there was a move in UPL, I
06:27 believe. Antique had a buy nod yesterday. That stock moved. United Spirits has moved
06:32 as well. And, you know, there are a lot of very smart investors who talk about how United
06:37 Spirits by virtue of premiumization and margin management could actually do really well.
06:44 So watch out for this one too. And Alchem Labs, while the news was broken by various
06:49 media outlets yesterday, I think the company's official statement came in post-market hours.
06:52 So I'm bringing it today. It said that income tax department conducting survey at some offices,
06:58 maybe the stock reacts. Let's wait and watch. Gufid Bio, I don't know what kind of impact
07:02 would it be, but I'm just bringing it out. It's granted patent for invention of a term
07:06 for 20 years, effective from April 19, 2021. I have zero idea about what the patent is,
07:11 what kind of product it is, but it's a news that I thought I should bring it out. Excuse
07:15 me for not having a chance to study this, but in case this stock reacts, you know why.
07:20 If you want, you can just do some basic research on this as well. But it's a news, so I thought
07:24 I should bring it out. Now, Patel Engineering, I don't know if it reacts or not because the
07:28 size of Patel's share in this project, they're backed is just about a hundred crores, but
07:34 it's a, the JV has been declared L1 for an innovation project. And you consistently see
07:39 some of these infrastocks tagging orders, and which is a good sign by the way. So, and
07:48 Patel, remember as a stock has gained quite a bit as well, despite the last few days volatility
07:54 or all over the last few months, Patel Engineering is at a good move. Let's wait and watch if
07:57 there's more in store. Indigo is interesting. This is no news, but I thought I should bring
08:02 it that PGCECQ, Urgent Intervention in Indigo Engine Wars. Now the note from MK is interesting
08:09 here. One, they are saying that the Pratt & Whitney engine issues have aggravated with
08:16 parent company RTX Corporation expecting over 3000 engine recalls for inspection, versus
08:22 an earlier estimate of over 1200 engines. Now MK estimates that incremental impact on
08:29 Indigo under the worst case scenario, there'll be 20-25 more accounts on ground at a time
08:34 on an average for the next three, four years from 40, as the belief was 40 at the end of
08:39 June 23. Now why this could also be happening? So of course the damage will not be as large
08:45 as it was earlier in the search, and we say, excuse me, and MK's note goes on to say that
08:52 as per media reports, Indigo plans to add 20 A320 NEOs on dampleys. Now the blended
08:58 impact of the dry and dampleys on net earning is about 6-7% according to their assessment.
09:06 They believe Indigo remains the best place amongst peers to tackle the current challenges
09:10 of engine issues and rising fuel prices. The expected yield recovery, according to them
09:15 because of a peak or a busy travel season, should offset cost pressures. Well, let's
09:23 see if that happens, but watch out for Indigo in case it reacts because of the news, but
09:29 the analysis of somebody who tracks it closely seems to suggest it's not a very large impact,
09:34 so bear that in mind. Then Tata Motors, Nomura's note is interesting. They say their target
09:41 price remains 786 with a buy rating. They say Nexon entry variant pricing offers much
09:45 higher value along with a major technology upgrade that is coming. They believe Nexon
09:51 has the potential to become the highest selling SUV in the entire SUV category, including
09:55 the large SUVs, not just the compact SUVs. Right now Nexon is a leader in the compact
10:00 SUVs. They believe Nexon has the potential to become the highest across all categories.
10:05 That could be big for Tata Motors, and they say that the company is also planning to start
10:09 building exclusive retail showrooms for EVs, which could actually help the sales. Well,
10:14 let's wait and watch if Tata Motors continues to remain a favourite on this auto space.
10:19 It's a stock that's done well, you have to admit. Let's see if there is more in
10:22 store. Then, Tata Rail Systems, and you saw the interview yesterday. By the way, viewers,
10:27 if you haven't seen the Tata interview, I urge you to try and go and see it because
10:31 not only it gives you a sense of how the management is thinking, but it also gives you a sense
10:35 of, you know, we've done it from inside a locomotive factory. And it was, I mean, I
10:42 had expected a locomotive engine factory to be old world, not necessarily stick and span.
10:49 It was anything but that. Hats were compulsory. So I was pretty impressed with the facility,
10:54 I must say. But so therefore, I urge you to watch that interview, of course, because it's
10:59 a I mean, forget forget the question answer, which is also important. But just the feel,
11:03 look and feel that you get from the factory is also important. I think you get that from
11:07 the shop floor that we've done that. But that this is a conversation that I'm talking
11:13 about. Do try and catch this. Now, this is one. But so it's just interesting that today
11:22 HSBC's come out of the note on Tata Rail Systems. They've retained the buy rating, they've raised
11:27 the target price to 900 from 750 earlier. And they say that the target price hike is
11:33 on increased earnings estimates and valuation rollover. Robust core industries volume trends
11:38 underpinning very strong demand for railway wagons from the private sector. The wagon
11:42 orders from the private sector come with superior profitability as well as working capital terms.
11:46 And in fact, they believe that even Q2 beta margins could surprise given the high private
11:50 sector contribution in Q2. Now, I must admit, I did not ask any questions about Q2 immediacy
11:58 to Umesh Choudhury. But be that as it may, I thought it was still a conversation that
12:06 gives you good insight. And HSBC talks about the near term as well. Now, remember, railway
12:09 stocks have come off the boil and maybe rightly so because these stocks are trading at very
12:14 high valuations. But even on these valuations, HSBC, for example, and they seem to be tracking
12:19 as well because I've read that initiating coverage report on Tata as well. They believe
12:23 on these valuations they want to roll forward targets and hike the target price higher.
12:27 So very interesting in case the stock reacts. You know why? It's not because of my interview.
12:31 I don't create it for it at all. I'm saying it will react if it does because of the HSBC
12:36 notes. So do watch out for that. What else am I missing? Yeah, you know, there's a note
12:42 from I think Nomi Rawits speaks about how the East India cement price hikes have been
12:47 absorbed well by users. So therefore, watch out for the East India cement companies, Nuvo
12:54 Covista, Dalmia, Star Cement, etc. So those are pockets to watch out for. Techminer is
13:01 a new organisational structure, so that should be kept in mind. Yeah, Spark is a TCS upgrade,
13:10 so maybe that stock reacts a little bit. So that's to be watched out for as well. And
13:17 yeah, there's a newspaper report which says Dixon is in talks with US-China companies
13:23 for laptop manufacturing. Well, we know that from November, I think laptop imports into
13:27 India will attract a duty. So therefore, domestic manufacturers would well be in fray, which
13:33 is why I think ITI has risen like nobody's business from 125 or 135 to 200, if I'm not
13:42 wrong, is the price rise in ITI in five days because they have manufactured domestic laptops
13:47 with Intel processors in partnership with Intel. Now, Dixon is also trying to do that.
13:51 So watch out. This space could be very, very interesting, especially after November as
13:55 imports become more expensive or impossible as the case may be. Nevertheless, that's the
14:02 long and short of it. It's a busy day at Deque Prime. Of course, we'll have talking point,
14:07 obviously. Ajay Shrivastava of Dimensions will be joining in to talk about his thoughts on
14:11 the markets. He was not very constructive the last time and the markets have risen.
14:15 So it'll be interesting to lay the devil's arrow again and pick his brains about what
14:19 is his stance now. So that's one conversation. But it's a busy day because it's also the
14:25 banking summit and starting 11 a.m. today on Deque Prime. Various conversations. We
14:30 call it the banking. We call it Banking Unlimited. And it'll be very interesting to see what
14:38 some of these bankers have to say with regards to operations, with regards to what's the
14:43 profit to profitability. It's not just, of course, banking. It is also in the AFCs. So
14:50 it is very interesting. Very quickly, before we wrap up, there's a query. Is it time to
14:54 be cautious on markets? Well, and is it time to buy railway stocks? OK, two queries that
15:01 have come in. The first one from Kanishka Dibber. Too many IPOs, too many new people
15:07 jumping in thinking money making in the market is easy. Kanishka, it's a very valid question.
15:14 Very valid point as well. Usually I've seen market peaks happen when everybody is constructive.
15:20 I believe a lot of people are skeptical currently. So I don't know if it's a peak, but is it
15:25 time to be cautious on the market? Most certainly, especially at the broader end of the spectrum.
15:30 But I urge you, Kanishka, I think Chris would sum it up very well. That at the broader end
15:34 of the spectrum, there is a bit of a froth. There's a bit of room for correction in mid-cap
15:40 area. Now, your mid-caps may not be expensive and therefore they may not correct, but a
15:45 lot of other mid-caps may. And therefore you've got to guard yourself against that. But in
15:49 the large cap space, think about it, IT, banking, energy, I don't think the valuations are too
15:55 demanding. So a routine correction, 5 percent, 7 percent, can that happen? Yes. Can it make
16:01 you feel that the mid-caps have corrected 15 percent? Most certainly. So please be careful
16:05 about which mid-cap pocket are you a part of. That's the most important thing. And another
16:10 query about whether it's time to buy railway stocks. Very difficult answer, really. In
16:14 fact, if anything, Surya. OK, yes. So is India turning out to be a manufacturing hub? I urge
16:22 you, Surya, to try and see that interview that I've done with Namesh Choudhury. In various
16:27 ways, he talks about how India is likely to become a manufacturing hub. We've seen companies,
16:33 both consulting and manufacturing, go out across the world and try and do some, how
16:39 do I say, contracts with global companies, global countries for manufacturing railways
16:44 out there. You see the G20 outcome as well. It's a long drawn process, but I'm just saying.
16:49 So yes, it is becoming that. But some of it is being captured in the valuations for sure.
16:55 Are railway companies looking very strong? Yes, they are. Can they correct a bit? That's
16:58 the only key thing. But try. I mean, I think we'll try and storify the HSBC note as well.
17:07 You might get some cues from there to try and hear the interview and you will get some
17:11 cues from there too. But keep in mind valuations that they are looking a touch stretched in
17:16 select cases. Well, we're about time on Trade Setup. Thanks so much for tuning in and have
17:23 a great weekend.
17:23 Thank you.
17:24 Thanks.
17:25 Thanks.
17:27 Thanks.
17:29 Thanks.
17:30 Thanks.
17:31 Thanks.
17:32 Thanks.
17:32 Thanks.
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