“Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.” Warren Buffett.

The near one-way rally in stock prices indicates that the earnings season will have more positive surprises than negative ones. Bernstein’s Venugopal Garre and Nikhil Arela don’t think so. They point out that earnings have not kept pace with the rally in stock prices. Even in stocks with decent earnings upgrades, the surge in valuation has been disproportionate.

From their note:

“There is limited scrutiny on earnings in such phases of markets. Any idea is rationalized as the next wealth generator, and a broad positive 50-year view on India suffices the investment thesis. Momentum chasing in the short term is too lucrative to stay away from,” writes the duo.

Short Call view: Bulls better watch out for a double whammy of lackluster earnings and an uneventful Budget.

Consumer inflation

Bank of Baroda economists Aditi Gupta and Dipanwita Mazumdar expect pressure on headline CPI to continue and do not foresee food inflation to dip below 7.5-8% in the next two to three months.

Reason: Heatwave in the country is persisting longer than usual, particularly in major TOP (tomato, onion, potato) producing states. Also, with the harvesting period nearing its end, there will be a lag in fresh arrivals.

Telecom

Outlook on telecom stocks is positive with the companies announcing tariff hikes. But the impact on the companies’ earnings may not be immediate, according to Emkay Globa’s senior research analyst Sabri Hazarika.

“Due to potential sim consolidation, down-trading of tariff plans by subscribers, and long-dated plans likely to see back-ended renewals, the actual impact on ARPUs (average realization per user) would become evident after a few quarters,” Hazarika writes in a note to clients.

Short Call view: Telecom stocks have rallied a fair bit recently, and some consolidation is likely before the next move.

Steel

Spot coking coal prices have come sharply since the start of the year. In addition, a revival in exports and strong domestic volumes should boost the profitability of Indian steelmakers, write Pallav Agarwal and Suman Kumar of Antique Stock Broking.

From their note:

“The latest World Steel Association’s short–range outlook projects India’s demand to rise to 144.3 MT in CY24 and 156 MT in CY25. Rise in Chinese domestic consumption and consequentially lower Chinese steel exports would support Indian steelmakers.”

Bharat Dynamics (Rs 1,596, flat)

She held an investor interaction session.

Bull Case: Revenue expected to rise from Q2 FY25, driven by Anti-Tank Guided Missiles (ATGMs), Surface Air Missiles (SAMs), and export orders. FY26 revenue growth is anticipated from the 3rd and 4th regiments of Akash—plans to explore cruise missiles and satellite launch vehicles for future growth.

Bear Case: Supply chain disruption due to the Israel-Palestine conflict. Execution delays in SAMs and torpedoes. Margins may decline due to higher use of purchased components in weapon system execution.

Inox Wind (Rs 141.88, 1.26%)

Axis Securities has initiated coverage on the stock with a 'buy' rating and a target price of Rs 185 per share.

Bull Case: Strong order book, ramp-up in execution, technological advancement, nil Interest-bearing debt on the books. A strong balance sheet makes Inox well-positioned to capture the market share of the growing wind sector.

Bear Case: Execution, technology, and competition risks may be challenging. Significant regulatory changes, the need for transmission infrastructure, and delays in auctioning renewables may act as headwinds.

Godrej Properties (Rs 3,152, 1.5%)

Stock made a fresh record high on Friday

Bull case: Highest-ever pre-sales of Rs 22,500 crore in FY24, the management guidance of 20 percent YoY growth in pre-sales over FY25. A healthy demand environment and robust bookings across cities can generate surplus cash and strengthen the company's balance sheet.

Bear case: Muted demand, delay in execution, and higher inflation can restrict hit demand. Delayed investment across its core markets can also restrict its growth in market share on that base.