The bulls want an excuse to celebrate. And that is the case not just in India, but in the US as well. The S&P 500 and Nasdaq hit record highs even as the Fed has forecast just one rate cut for the rest of the year, against three predicted at the earlier meeting in March this year. What does that mean for India? Firstly, while interest rates are high in India, there is not so much a talking point for stock market players here compared to their counterparts in the US. Till a couple of months ago, the general view among economists was that the RBI was unlikely to cut interest rates ahead of the US Federal. That has changed, now that inflation appears to be pretty much under control. Also, last week, Governor Shaktikanta Das said that the Monetary Policy Committee (MPC) would be looking at domestic conditions while deciding on rate cuts and that it would not be following the Fed. But chances of the RBI pre-empting its US counterpart is slim, writes Madhavi Arora, Lead- Economist, Emkay Global, in her note to clients.
While headline consumer inflation numbers for May continued to ease year-on-year, sequential momentum remained high, led by higher food prices, Arora says.
From Arora’s note:
“Headline inflation is likely to decline due to favorable base effects in the coming months before rising again, but the monsoon progress will be crucial for food price trajectory. FY25E inflation could undershoot RBI’s forecast (4.5%) by 10-20bps. However, there is no macro stability case for the RBI to precede the Fed in any rate action.”
Varun Beverages (Rs 1,559, 0.8% )
Rose for the sixth straight session.
Bull case: Beverage market to grow to over $4 trillion by 2028. Varun has commissioned three greenfield production facilities in India for the 2024 season, and analysts expect the latest acquisitions to drive growth.
Bear case: The company depends on strategic alliances and agreements with PepsiCo, changes in consumer preferences could impact demand for the company's offerings as beverage markets are highly competitive.
Tata Motors (Rs 989, flat)
The company hosted its Investor Day. Most brokerages returned impressed
Bull argument: JLR business performance to improve, market share in commercial and passenger vehicles business to rise, and balance sheet to have net cash by end of this year, says Kotak.
Bear argument: Commercial vehicle growth could moderate due to a likely slowdown in road infra spends, increasing competition from Western Dedicated Freight Corridor (DFC), and a high base, says Nuvama. The stock has already run up a fair bit over the last year.
Sun TV (Rs 774, 2.78%)
Hit its highest level since August 2018
Bull case: Possible demerger of sports business can unlock value for shareholders, says Axis. The broker also expects a buyback or a one-time dividend payout, adding that Inexpensive valuations are a bonus.
Bear case: Declining market share in Telugu and Kannada, and sluggish expansion in newer markets of Bangla and Marathi are key challenges. Disproportionate dependence on the sports business for revenue and profitability growth.
Federal Bank (Rs 173.60, 3.60%)
Buzz over contenders for its new MD and CEO.
Bull case: Healthy loan growth, stable NIMs, and lower credit cost outlook are key positives. Strong asset quality to aid return ratios in the near term. Timely resolution of the embargo on co-brand credit issuance could trigger re-rating.
Bear case: Credit cards are ~1.5 percent of loans outstanding for Federal Bank, but ~70 percent of cards are co-branded. Hence, any delay in the resolution of the ban on co-branded credit cards can hamper the stock's near-term trajectory.
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