Banks & Pharma Can Aid Market Upmove Today | Trade Setup
Trade Setup | Nifty can see some jitters around 20,000 but underlying factors remain strong
Transcript
00:00 Good morning and thanks so much for tuning in to the Trade Setup. I'm Neeraj Shah.
00:03 Well, lots of things to focus on this week. Remember, following a very quiet week in terms
00:09 of data and events, Spotlight from a global perspective now turns to three major central
00:14 banking meetings, which is the Federal Reserve, the ECB and the BOJ. And maybe just one rate hike,
00:22 but the commentary from the Fed would probably set the stage of what happened to global markets
00:27 this week. Now in light, and there is also the US due to GDP. In light of that, the globe becomes
00:32 as important as India does, because India is a packed, heavy earnings week, and it's also a
00:37 derivatives week. So the week itself will be full of action. Now for today, what did the US markets
00:42 do? Well, they eked out minor gains, if you will, in Friday's session. So if you look at the Dow
00:49 and the S&P just about ending in the green, the Nasdaq, of course, 0.22% down and for the week as
00:55 well. The Nasdaq didn't have a rara week, to be very honest. The other cues were stable, the yields
01:00 have inched up and they stay higher above 3.9. I remember the whole of last two weeks, I was
01:06 talking about the zone of 3.7 to 3.9. On Friday or Thursday, they moved up above 3.9 and they've
01:13 stayed there. VIX is stable, dollar index is above 100 as well. So that was a brief interlude of
01:21 the yields correcting and the dollar index below 100. I think it's moved back up. So that's the
01:26 key. And the SX Nifty or the GIFT Nifty should come up on your screen for a moment. Sorry,
01:31 before we get the global news flow, the GIFT Nifty is down about 0.14% at 19,739. Not so near,
01:39 and yet so far from 20,000. The global news flow now, China has addressed or tries to address
01:45 investor concerns in a meeting with global funds. But the news flow doesn't seem to be very positive
01:52 there. Most Asian markets except China, trading the green the last time I saw. India's deepened
01:58 economic ties with Sri Lanka introduced UPI in the Sri Lanka market as well, I believe.
02:03 I think this has happened or going to introduce either of the two. Excuse me if it's going to
02:08 introduce and not introduced as yet. So pardon me for that. But I think it has. At least that's what
02:13 I seem to be reading from the headline. And oil is open lower. The weak lower as the traders assess
02:20 Fed tightening and the tightening oil market both in conjunction. So in light of all of this,
02:28 what is a simple way to trade today? Well, I think it's not a simple way to trade today simply
02:32 because it's a packed day full of result reactions and difficult to quite assess what could happen to
02:39 one beyond the other. So the trade set up will come up on your screen first. And like we keep
02:44 on saying, trade the market, not the forecast. So there are some jitters around Mount 20,000,
02:52 but the underlying factors still remain strong, I believe. However, index could take body blows
02:58 from reliance and banks could help shore up the confidence. Pharma is doing well ahead of a key
03:05 results week and that offers wealth for the sector. You know, viewers, from the start of
03:09 March, if you see, pharma has been moving almost in tandem with what the Nifty has done. This whole
03:17 last week, pharma index actually did much better in a relative sense to some key indices. And this
03:24 week is a key one in terms of results for pharma. I believe there is Dr. Eddies, Cipla, midsize
03:30 names as well coming out with numbers. So it's an important pharma week and therefore the sector,
03:35 which has largely been a market performer since March, but has been a rank underperformer before,
03:40 would be a good one to look at from a trading perspective. I saw this, I saw Dr. Sikanarayan
03:48 also mentioned something like this in his note as well. So that is to be watched out for.
03:52 Now, the other key aspect to focus on viewers is flows. Remember, we had a slightly negative set
04:00 of flows, one off in Friday's session. Let's see if this trend lasts or whether
04:06 there is a bit of a difference there. So that is to be watched out for as well.
04:11 In terms of numbers, there is Tata Steel coming out with numbers today.
04:18 That's the large one from the index perspective. Aside of that, a clutch of important ones,
04:24 Canada Bank, Craftsman Automation, IDBI Bank, IFL Securities, there's JK Paper,
04:31 PNB Housing Finance is important one as is Poonala Pinkar and SRF could be important. Remember,
04:36 companies which came out with slightly wobbly numbers last week as well. For example,
04:40 the numbers weren't on the best, but maybe the negatives are in the price and the stock went
04:44 down about 6%. Can SRF do the same if its call is interesting? I think that's the key thing.
04:50 So watch out for that as well. What about stocks to watch in the session today in light of the fact
04:56 that a lot of result reactions anticipated in trade? So there is Reliance that we should start
05:05 off with. And for a lot of these numbers, I'm not getting the exact result because the results are
05:10 known, but trying and getting more of what the brokerages have said. So Morgan Sandy's note on
05:14 Reliance is interesting. They have reduced the target price to 3000 from 3210. Now, what they're
05:23 saying is that the earnings report should shift the narrative towards an upgrade cycle as the
05:29 chemical restocking cycle ends and global fuel demand continues to outperform. Retail revenue
05:35 per square foot improves from the lows, net debt stabilizes and 5G rollout gets traction. Except
05:42 for 5G rollout, the same argument that I've heard for the last two, three years, I'll be very honest.
05:48 Or at least the last two, three quarters, if not the last two, three years on the chemical side,
05:55 but otherwise the global fuel demand as well as retail revenue per square foot,
06:00 net debt is an argument that's played out now for a while. Morgan Sandy too is low on its target
06:05 price. They say that tax rate normalized to 24% in one queue from 11.6% in March 2023,
06:12 as production from KG Basin should rise to 30 MSCV. And that is something that is to be watched
06:16 out for. And major maintenance in O2C business was completed in the June quarter, which maybe
06:22 hampered the June numbers, but could go ahead. Now, key point is viewers that everybody was
06:27 worried about the Reliance GDR, which was down quite significantly over the weekend.
06:34 But the thing that might go for or work for Reliance as well as some of the others is that
06:38 Singapore GRMs are getting back to normal. I mean, so 7.95 per barrel, which is the highest since
06:45 March. GRMs have been rising very swiftly. The March, May 2023 low was about 0.9 per barrel.
06:53 And now it is 7.95 per barrel. So Reliance has that technical trigger of rising GRMs,
07:02 which have to be kept in mind. So do watch out for RIL in the session today. Then do watch out for
07:07 Isasiya Bank. Jeffrey sums up the results and they say it's a buy with a target price of 1240.
07:14 They say the 1Q profit of 96 billion, which is 40% or 9,600 crores, 40% growth was ahead of
07:21 estimates with tad better news, with lower recoveries and upgrades, even with stable
07:26 stippages, trend of lower credit cost may stay, which is good news. Pick up in deposit growth to
07:31 18% should aid loan growth and 18% loan growth would be acceptable, to be honest. They see a
07:36 16% CAGR impact on FY23-26. Well, 16% CAGR for a bank of that size. Very good. Morgan Stanley has
07:47 an equal rate on Fortec Bank, which is the other one that came out of numbers. They can say it
07:51 continues to deliver on asset quality, growth and profitability. The deposit growth was a key result
07:56 that accelerated further in the quarter, 6% QOQ, 22% YOI versus 16% last quarter. Potential for
08:04 operating leverage, according to MS, is strong. They believe capital market trends have picked up
08:10 and they expect sustained strong earnings. So do watch out for Fortec Bank 2 in trade in the session
08:21 today. That's the other stock in focus. Then I think the one that I like the most, I've missed
08:28 out on two things, which is DLF and HDFC Life. And I'll get those at the end of trade setup.
08:34 Credag is the other one, the numbers. So NII was up 58% to 720 crores versus 456 crores.
08:44 Back up 2x to 347 crores versus 138 crores at quite a stunning quarter, really. And HSBC
08:51 rightly came on to the note, which is a buy call, despite the higher valuations. They are saying
08:56 that the higher quality of growth of Credag deserves higher multiples. The target price
09:02 has been raised to 1670 from 1450. They say that yields increased and cost ratios declined,
09:09 resulting in a stronger profit beat. It's a beneficiary of the harmonization of MFI
09:15 regulations with those of banks. They believe their 525 price to book multiple of 2.6x
09:22 leaves some room for re-rating given the outflow. So they say that it's expensive,
09:27 but it deserves higher multiples. That's the HSBC view, not necessarily
09:31 everybody else's. I haven't been able to get some of the other brokerages to be honest on credit
09:37 access, but some high quality investors are constructive on this. The results are very
09:43 strong. Do watch out for Credag in the session today. Do watch out for RKF Forging in the session
09:47 today. Very interesting acquisitions announced too. So they're saying sales up 28% at 892 versus
09:54 699. EBITDA up 28% at 192 versus 150. EBITDA margins at 22% versus 21%. And PAT up 53% at 79
10:05 crores versus 51 crores. Now the thing is viewers, the numbers are good. The company's expanded
10:11 capacity by 13% to 2,10,900 tons recently. It will commission another 32,500 tons by September 2023.
10:22 And it's announced two acquisitions, which will add about 10% revenue from FY26 onward. So NetNet,
10:29 they're doing everything that they can in order to improve their growth metrics. And that should,
10:36 I believe, augur well for Ram Krishna Forging. So it's a stock that's rallied
10:44 quite a bit in recent times. I would suspect that there could be more in store by virtue of the fact
10:52 that there is a DAM capital note which says that there is a re-rating possible for RKF Forging. So
10:58 do watch out for this one in the session. I haven't mentioned Titagar, but that also came
11:02 on the steady state of numbers. So both of these will be in conversation today with B2 Prime
11:06 at about 11.15 and 11.30. So more on June in for those. We'll get you the updates of the
11:11 conversations a bit later on. And Paytm, they expect to be cash flow positive before end of FY24.
11:18 They say that the take rate in the lending business is 3.5% to 3.75% and expected to improve
11:25 going forward. The take rates in the commerce business moderated to 5% to 6% in Q1,
11:31 but expected to increase in H2 due to seasonality. So do watch out for Paytm too. I think brokerages
11:38 have been constructive on these numbers. Glenmark Lite, Q1 numbers, sales up 18%,
11:43 back up 25%. EBITDA margins at 33% versus 30%. Pretty strong show by Glenmark Lite.
11:51 Signed DLM. EBITDA was strong, EBITDA margins were strong and total revenue numbers looked okay as
11:58 well. Do watch out for this one. Tejas Network had an iffy quarter though. Revenue from operations
12:04 gained about 49%, but EBITDA loss stood at 46 crores versus 7 crores. EBITDA margins minus 24%,
12:12 net loss widened to 26 versus 6 crores. It's a company in the investment phase,
12:17 and which is what people believe that in the future, it will do remarkably well.
12:21 Let's see if that happens. RT Drugs, the numbers seemed okay. Total revenue from operations
12:28 up 6%. EBITDA margin at 12.7 versus 10.8. Net profit up 38% to 48 crores versus 34 crores.
12:36 A couple of notes that I read said that the sales growth was due to higher volume from the API
12:45 business and due to declining raw material pricing, we expect margins to improve going forward.
12:51 The company's also approved a buyback. It's a tiny, weeny buyback at 900 per share,
12:56 but maybe that coupled with numbers results in RT Drug doing well today. So do watch out for that.
13:01 And SJVN has two separate announcements, both of which are interesting. They've signed PPAs
13:07 for 300 megawatts and 200 megawatts in Maharashtra and Delhi. Development cost of
13:15 Maharashtra and Delhi projects are 1200 crores and 750 crores. Now, if you thought this was
13:19 interesting, see the other one. The subsidiary SJVN Green Energy has received LOI from Punjab's
13:25 State Power Corporation Limited for procurement of 1200 megawatts solar power. These solar power
13:31 projects shall be developed on a build, own and operate basis. The tentative cost of construction
13:37 could be about 7000 crores. So two large things for SJVN. By the way, large for NHPC as well.
13:45 The government of Andhra Pradesh has allotted the Subban city upper HE project of 2000 megawatts and
13:53 Kamla HE project of 1800 megawatts to the company. That's large, but NHPC gets them.
14:00 And Power Finance Corporation has signed MOUs worth 2.37 lakh crores with 20 companies in the
14:06 clean energy segment. Now, we know that MOUs don't necessarily mean business. I mean, they've
14:10 been signed with Adani Group, Green Core, Renew, etc. They don't necessarily mean that business
14:15 will be done. But we know that the government is very serious about power. And therefore,
14:21 you would believe that a lot of these might happen. You know, viewers, if you,
14:24 Ellada Capital recently came out with a note with an upgrade on PFC. So that's part one.
14:31 If you want to understand more about the opportunity size at PFC, my colleague Vishwanath
14:36 Nair did an interview with the PFC management. It is something you might want to go in on YouTube,
14:43 on our website, wherever and search for it. I think there's some very interesting conversation
14:48 around the opportunity size, which is captured there very well with the management. You should
14:52 try and see that. But this is very interesting. It's been a quote unquote powerful weekend for
15:00 the power companies. Let's see if it translates into transaction. Biopon has had some issue.
15:06 USFDA has issued a form 483 maybe. So that could be a bit of a problem for Biopon. So let's see
15:14 what happens there. Sesha Sai paper results were weak. It's the first company in the paper block.
15:19 JK paper comes out with numbers this week. So maybe Sesha Sai has some issues. Raj Dutt and
15:23 Myers had some issues. So that could be in focus as well. And some other stocks in focus include
15:28 a Railtel, wherein bond mutual fund has bought about 23 lakh shares. Or L&T Finance, which has
15:33 been cut to underweight at Morgan Stanley, price tag at an R&N 10, which is a 15% downside. Vedanta
15:38 has been cut to a sell at Citi, price tag at 225 rupees, 19% downside. Or Canfin Homes, which has
15:44 been raised to overweight at Morgan Stanley, price tag at rupees 1000, which is about 19% upside.
15:50 So, well, watch out for all of these as well. DLF was overhung by the way. So I think that great HDFC
15:56 life. I saw a couple of brokerages raise the target price. So only that does react. I think
16:01 I've tried to cover as much as I can. Now the focus will be on reliance, what it does, opposing
16:08 factors at play, results negative for GRMs on the up. Maybe that helps. Banks, both Kotak, ICICI Bank,
16:15 RBL, U.S. World Finance Bank, Motamoti, those things were okay. But most banks have guided
16:21 towards compression or spoken about compression in NIMS and guided towards more compression in
16:27 net interest margins. Does that play a small sport? Maybe not. The valuations are okay. I think banks
16:33 are in a sweet spot. So watch out for banks. Watch out for credit access pyramid. Watch out for
16:38 pharma stocks, RT drugs, notwithstanding some of the others, this week, common results. Those
16:44 could be interesting. And a clutch of other smaller names in the power space, large names as well.
16:49 And the results face some smaller names as well. L&D Finance, a sharp cut to target. Vedanta,
16:56 sharp cuts to targets. Canfin Homes raised to overweight at Morgan Stanley. So that's an uptick.
17:03 Lots of stocks to focus on. I hope you got some of these at least. But it's a wide buffet out
17:08 there. Trade wisely today. It's a very important week. So trade wisely for the week as well.
17:13 And like I said, a lot of conversations coming up at BQ Prime today. So aside of, of course,
17:18 JSW Steel, Jayant Acharya at 9.30, that's an important one. And he talks a lot, at length,
17:24 I think about the guidance for the year and the quarter. So watch out for that. So JSW Steel is
17:30 important. Krishnakumar Karwa on talking point today at 10am. So that is important. Then a
17:37 touch of results. And of course, since IT is the focus point of everybody's thoughts, JP Morgan's
17:46 head of APAC IT and Telecom, Ankur Rudra joins in at 10.30am to talk about the ITPAC. And at 11.15,
17:56 yeah, okay. 11.15, Umesh Chaudhary of Tata Wagons. I think 11.30, we have Ram Krishna
18:01 forging. So that's to be watched out for. 12pm, Alpha Strategist with Moti Laloswal,
18:07 Ashish Shankar and Vitin Shanbhag. That's to be watched out for. And then of course,
18:12 the trade talk conversations at 11am, 8.30 and 3.15. So, factly, we hope you tuned in for some
18:19 of these. Thanks so much for tuning into the Trade Center.
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