Monday, February 26, 2024
Monday, February 26, 2024
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Short call | Small caps may not defy gravity for long; Attention to Aarti, Petronet on slippery road, Biocon in trouble

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“In the stock market you quickly learn how important it is to act quickly.” -Bernard Baruch

The results season enters its final stage this week. Overall, the December quarter numbers have been a reality check for the bulls. It’s been a mixed bag, as always, but this time the glitches seem to have drawn more attention. The euphoria in midcap, smallcap and microcap stocks continues unabated. One reason is that the numbers have generally been good, but the biggest force at play is lack of liquidity. A reality check in this space may also not be far off.

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Aarti Industries (Rs 663.05, +4.7%)

The company’s third-quarter revenue grew 3 percent year-over-year and 19 percent quarter-over-quarter.

bull argument: Price and volume growth led to revenue growth in a challenging market. There is demand in sectors such as dyes, pigments and polymers.

bear argument: Profit fell 9 percent. Sectors such as agrochemicals and pharmaceuticals remain plagued by demand challenges.

Petronet LNG (270 rupees, -3%)

Shares have retreated nearly 10 percent from their all-time highs.

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bull argument: The company signed a long-term agreement last week with

QatarEnergy for purchasing 7.5 million tonnes of liquefied natural gas (LNG) per year. As LNG prices have cooled, demand is expected to increase.

bear argument: Increasing competition, underutilization of existing capacity and likely pressure on margins due to foray into petrochemicals.

Biocon (274 rupees, -3.76%)

Shares plunged after the December quarter missed market estimates.

bull argument: Adding a large customer base in insulin glargine and winning incremental contracts on existing products can help improve profits. Received four product approvals in APIs and formulations, one in US, UK and two in RoW. The biosimilars and peptides portfolio can potentially drive double-digit growth.

bear argument: Regulatory issues in Malaysian facilities and moderation in demand for CDMO services remain obstacles. The generics business continued to struggle and biosimilar margins were disappointing.

Zomato (Rs 149.10, +3.47%)

The stock gained after a strong performance in the third quarter. Brokerages raised price targets as the company posted its third consecutive quarter of profits.

bull argument: Blinkit, which was a problem, is now picking up speed and contributing to the overall gross merchandise value. Zomato’s platform fee (of Rs 4) also helps in generating profits. Mutual funds have been increasing their participation

bear argument: ONDC expansion remains the biggest threat to Zomato. How the company grows in tier 2 and 3 cities remains a key factor that can be monitored.

Grasim (Rs 2,179.05, +5.92%)

The company’s net profit for the December quarter rose 48 per cent.

bull argument: The increased capacity for the Epoxy business will help the company meet the growing demand. The painting business will launch in March and that could mean an additional stream of stable income.

bear argument: Challenges in the caustic soda business continue to challenge revenue. Embroidery and home furnishings also saw lower demand.

Interglobe Aviation (Rs 3,105.95, -0.84%)

The stock took a hit after a parliamentary panel proposed a cap on airfares for specific routes.

bull argument: Demand remains strong. It can be seen in the company’s plans to increase its fleet size to 350 in FY24 from 306 in FY23 and also add 10-15 new destinations. Crude oil prices are expected to remain stable.

bear argument: The former Gangwal family, promoters, is looking to sell its stake. So institutions that want to buy large blocks will not have to do so on the open market.

(With inputs from Yash, Anishaa, Ananthu and Srushti)

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