Technical Reversal In Some IT Stocks Not Ruled Out | Trade Setup: August 1
Trade Setup | Volume profile indicates #Nifty has a strong support around 19500-19550 zone. #BQLive
Transcript
00:00 Good morning and thanks so much for tuning in the Trade Setup. I'm Neelad Shah.
00:02 Let's take stock of the global markets. First, the US markets had yet another positive day,
00:09 about a quarter of a percent for the Dow and then as that S&P about 1.15 percent,
00:13 no big changes there, but marginally positive, if you will. The other cues, the 10-year yields
00:20 or otherwise in 3.97s are staying high, WIX just flattish and of course the dollar index at 101.73.
00:29 So those days of sub 100 were few and far in between. Yesterday, because we had a positive
00:38 day close, the expectation is that we might continue to have slightly positive momentum,
00:45 if you will, flattish with maybe a marginal positive bias, but nothing conclusive, if you
00:50 will. Global news flow, well, across the world on various commodities, prices are ranking up.
00:58 So traders are paying nearly 2000 or $200,000 a day to ship gas as tankers have become scarce
01:04 around the world, especially in the Western region. Oil prices hit multi-month highs on
01:09 tightening supply. Arabica coffee has soared as producers roll back and as well as reserves are
01:15 lower. In other news, Apple supplier Foxconn is planning a $500 billion components plant in India.
01:22 As Bloomberg learns, the announcement could be happening as early as this week.
01:26 And normal rains are seen in the second half of India's monsoon season as per the IMD.
01:31 So the news flow, except on the commodity front, is not looking all that pretty. And that might
01:37 have a bearing on what happens to, well, margins of most companies because the expectation was the
01:44 second half will see a downtick. But that might not necessarily be the case, especially in oil,
01:49 by the way, four or five straight weeks of an uptick. And that's not great news from Fisk's
01:54 perspective as well. But I don't think we are in the alarming zone. As long as we sub
01:58 the levels of $90, I think it should be OK. Key stats of trade yesterday, the Nifty 50 gained
02:07 about 107 points to close at 1975.3. The Bank Nifty increased about 0.4% with IDFC first bank
02:14 in the same bank leading the games. Broader markets too did OK. The key is that the Nifty
02:20 metal space was the best performer, followed by Nifty Energy, like I said, commodity stocks.
02:24 And FMCG ended in the red, again, commodity price uptick led. Now, this is not necessarily a pattern
02:30 that will follow every single day. But you could see the pattern, like in trade yesterday, at least,
02:34 that the markets rewarded commodities, punished which will punish sectors which will not benefit
02:40 from a commodity price uptick. And it was quite evident in trade yesterday.
02:44 So the volume profile, and that's my trade setup, the volume profile indicates that the index has a
02:48 strong support around this 19500-19550 zone. You know, the put OI is maximum at 19600,
02:59 technical levels at about 1900-19500. So between that zone is where we have the strongest support
03:04 and resistance at 19,820,000. No surprises there. When I looked at the commentary from a lot of
03:13 technical experts post-market yesterday, there seems to be a bit of a technical reversal happening
03:18 in select IT names. And therefore, that's not ruled out, especially with the valuation support
03:22 that some of the stocks may be having. But let's wait and watch. I mean, there are a bunch of people
03:27 who have written in their notes, a couple of them have messaged me as well about what's happening in
03:32 IT and a bit of a reversal and support zones. Let's see if that holds. I confess, I'm not an
03:38 expert in technicals, I do not know how to check them at all. I'm just merely telling you that
03:42 because a clutch of people have written about this and therefore it's important to take note of that.
03:49 What I saw is that building material stocks and fertilizer stocks are seeing some traction
03:54 yesterday. I mean, you had an Astral, you had APL Apollo, you had a bunch of other building
03:59 material names doing well. These are expensive stocks gaining up 3-4% a piece. And that's the
04:06 story around building materials that you're seeing select names which are actually delivering,
04:11 doing well. By the way, it's not necessary that all of them will do well, right? Because Supreme,
04:15 for example, post results actually came up about 7-8%. Yesterday, fertilizer stocks,
04:24 Coromandel, which did very well, Paradigm Phosphates was up about 2-3%. So,
04:29 select fertilizer stocks also are seeing some traction.
04:36 Riya is buying about 2-4, 8 crores. So, the flows were not the strongest, if you will.
04:41 And the earnings in today's session, well, like as now towards the fag end of the earning season,
04:48 the last 15 days, you will see select days wherein we will not have too many index names coming out
04:53 with numbers. But today, reasonably important are running Total Gas, there is Bikaji, there is
04:59 Escorts, which is supposedly going to come out with good set of numbers. GMBC very likely to
05:04 come out with good set of numbers. And there is PBR and PBR Inox, which is slated to come out with
05:11 numbers. So, that is to be watched out for as well as well as Reddington. So, these are a few stocks
05:17 that I will certainly watch out for. Now, in terms of stocks to watch, firstly, the auto sales
05:23 expectations. And I don't think there's too much anticipated from the two wheelers in particular,
05:28 except for Royal Enfield. So, that is one name to be watched out for. M&M Auto Division might have
05:35 a decent outing and Ashok Leyland might have a decent outing. So, the expectations are not very
05:40 high. And therefore, if any of these businesses or any of these companies manage to beat those
05:45 expectations, then you might actually have, who knows, a decent run into some of those.
05:51 Now, the numbers, Maruti was
05:55 over in line with estimates, actually, not over, really, revenues are 22%,
06:02 EBITDA was up 56%. Margins came off a little bit, but the company said that the demand is normal
06:10 currently and momentum should continue led by new product launches. So, Maruti is one to watch
06:16 out for. Now, the thing about Maruti is that aside of the numbers, they have decided to
06:23 terminate the contract manufacturing agreement with Suzuki Motor Corporation, and they've exercised
06:29 the option to acquire shares of Suzuki Motor Gujarat from Suzuki Global. The mode of acquisition,
06:35 including consideration to be paid to SMC, shall be decided in a subsequent board meeting.
06:41 Now, the thing is, I looked at some scenario analysis from people, and the scenario analysis
06:46 suggests that if Maruti decides to pay in cash, 13,000 crores, then that will lead to about a 4%
06:52 to 5% earnings cut and 80 basis points reduction in return on capital. If they do equity,
06:58 it'll lead to a 4.4% equity dilution and ROC dilution of about 3 percentage points. Either
07:05 ways, we'll see a bit of ROC dilution and either equity dilution or earnings cut. So, net net,
07:12 from what they decided earlier, there is a change there and therefore, maybe the market may not like
07:20 it. So, let's wait and watch. When I looked at the brokerages, no big concerns. If anything,
07:26 people have said that Maruti might actually do well because of the gains in the
07:33 SUV segment. And the company said that the demand is normal currently, but momentum should continue
07:38 led by new product launches. So, maybe there are some positives there. I would suspect that Maruti
07:43 could have a slightly iffy start, but let's wait and watch. There is a clutch of other names
07:53 that have come out with an inline set of numbers. So,
07:58 4.1% YOY at 4158 crores versus 3504 crores. So, that was largely in line. EBITDA at 468
08:08 versus 449 crores up about 4.1% YOY. But the business looked okay margins,
08:19 at 11.3% let's move this plate away of Bosch, margins were marginally lower and net profit
08:24 for Bosch was up about 22% YOY. So, on that, on per se, the results seem to be in line with estimates.
08:34 Then, 8G Infra is the other one. So, I think that's a good example of a market that is
08:40 not in line with the estimates. So, revenues were up 22% at 1351 crores versus 1145 crores.
08:47 These are good set of numbers. I thought 8G Infra really. So, sales were up about 19%. EBITDA
08:56 was up about 26.5%. So, the business was up about 26.5% and EBITDA was up about 26.5%.
09:04 So, sales were up about 19%. EBITDA was up about 26% if I'm not wrong, okay 41%. EBITDA margin
09:14 at 20.8 versus 17.9 net profit up 37%. Well, the numbers seemed okay, really,
09:23 maybe slightly different, but broadly, I think the stock did okay and the numbers looked okay.
09:30 And therefore, the stock would react positively. Let's do away with the plates. Let's just do away
09:35 with the plates, please, if we can. Thank you. Okay, so 8G Infra is the other one that is to
09:40 be watched out for. Best AgroLife, the results were different amongst the agrochemical pack,
09:48 if you will. So, sales at 612 crores were up about 32%. Net profit up 126% at
09:59 91 or 90.5 crores versus 40 crores. Margins at 21.19 versus 14.24. So, on revenues, bottom line,
10:09 as well as margins, the stock did really well, the company did really well and that's to be
10:14 watched out for. So, watch out for Best AgroLife in the session today. That is the other one that
10:20 came out of the good set of numbers. Overall, I had a flattish kind of numbers. So, no great shakes.
10:26 Power grid, revenue flat, lower taxes resulted in a good quarterly pad. They announced a 1
10:32 is to 3 bonus as power grid. So, therefore, that stock, who knows, might react slightly positively.
10:39 So, that's to be watched out for as well. LINK was an inline quarter, no great shakes there.
10:47 UPL was a weak set of numbers, very weak set of numbers and this was anticipated, of course.
10:52 In fact, brokerages have not been too kind to LINK. So, that is to be kept in mind.
10:57 And Sumitomo Chemicals was not the best of numbers, you have to admit. Sales at 724 versus
11:04 986 down about 27% QOQ or YOY rather. EBITDA down 57% YOY. PAT at 62 crores versus 138 crores down
11:13 about 55% YOY. It was not a great quarter and therefore, that could be an issue for Sumitomo.
11:23 There could be an issue for Keynes Technology as well. For a stock which is trading at a TTMPO of
11:28 110 times, not a great quarter. Sales at 297 crores versus 197 crores up 49% YOY, which is
11:36 fine. But EBITDA at 41 versus 24, yes, YOY was doing well, but QOQ missed out a trick.
11:43 PAT also, YOY did okay, but QOQ did not do well. So, mixed set of numbers. If I just look at
11:52 quarter on quarter numbers, a 35% downtake in PAT is not something that you expect from a stock
11:57 which is trading at about 110 times. So, that's to be kept in mind. IPL, top line was maintained,
12:04 but clearly, stocking at play, some mixed set of numbers, you really can't do much.
12:11 Now, you know, stocks that should be in focus are two or three. Firstly, NTPC,
12:19 you know, okay, let's do with these and then come to dollars. Cochin Shipyard,
12:23 it's been kept as a, it's been given a special status by the government. So, that should be
12:29 watched. DLF, media reports suggest there is an OFS. So, that's to be watched out for. 3%
12:38 odds being sold by the promoters. And Wells Fargo India, a very strong con call has spoken about
12:43 restocking happening and that's to be watched out for. So, all three, DLF, of course, might have a
12:49 negative connotation, Wells Fargo India, which gained 8% yesterday. Con call seemed positive.
12:54 So, maybe some more positives. Cochin Shipyard might be positive. And two or three more stocks
13:00 that you've got to keep in mind. NTPC, the company's unveiled a detailed roadmap to 130
13:05 gigawatts by FY32 and has upped the renewable target for FY26, if I'm not wrong as well.
13:11 So, NTPC could be in focus. The stock is anyways on a technical uptrend. So, watch out for that.
13:15 Navin Flory could be in focus as the CEO of the CDMO business has resigned. The numbers are also
13:22 slightly wobbly. So, this could actually hurt the stock today. And we've spoken about, of course,
13:27 Maruti Suzuki at length. So, I won't get too much into that. But yeah, the termination of the
13:32 contract would be an interesting one to watch out for. So, do keep that in mind. If indeed there are
13:40 some softs for the lithium ion battery companies, then Maruti, then Exide could be in focus. Not
13:45 Amarajah because Amarajah doesn't have those plans. And Exide could be in focus. So, watch out for
13:48 Exide as well. A clutch of conversations lined up today on BQ Prime. So, at 9am, Amit Sachdeva
13:57 joins in from HSBC to talk about the India strategy equity report. Talking point with
14:03 Shiv Puri of TBF Capital Advisors at 10. Dipali Goenka and Welspun joins in at 12.30 to talk about
14:10 how strong water was for them. And that would be a good conversation lined up during the day
14:18 on BQ Prime. Do try and tune in for that. Thanks so much for tuning in. Great setup.
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