Market Watch: Earnings Surprises, Inflation Woes, Telecom Gains, Steel Prospects; Focus on Bharat Dynamics, Inox Wind, Godrej Properties

Investors should be cautious about the potential for disappointing earnings and a lackluster Budget.

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

The recent steady rise in stock prices suggests that the earnings season might bring more good news than bad. However, Bernstein’s Venugopal Garre and Nikhil Arela disagree. They believe that earnings have not kept up with the rising stock prices. Even for stocks with decent earnings improvements, the increase in their valuations has been excessive.

In their note, they mention:

“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.”

Short Call view: Investors should be wary of the potential for disappointing earnings and an uneventful Budget.

Consumer Inflation

Bank of Baroda economists Aditi Gupta and Dipanwita Mazumdar expect that headline CPI will remain under pressure and do not anticipate food inflation to drop below 7.5-8% in the next two to three months.

Reason: The ongoing heatwave in major tomato, onion, and potato producing states is lasting longer than usual. Additionally, with the harvesting period coming to an end, there will be a delay in fresh supplies.

Telecom

The outlook for telecom stocks is positive as companies have announced tariff hikes. However, the impact on earnings may not be immediate, according to Emkay Global’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 seen significant gains recently, and some consolidation is likely before the next upward move.

Steel

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

In their note, they state:

“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 consequently lower Chinese steel exports would support Indian steelmakers.”

Bharat Dynamics (Rs 1,596, flat)

The company held an investor interaction session.

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

Bear Case: Supply chain disruptions 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, and no interest-bearing debt on the books. A strong balance sheet makes Inox well-positioned to capture market share in 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 the auction of renewables may act as headwinds.

Godrej Properties (Rs 3,152, +1.5%)

The stock reached a new record high on Friday.

Bull Case: Highest-ever pre-sales of Rs 22,500 crore in FY24, with 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, delays in execution, and higher inflation can restrict demand. Delayed investment across its core markets can also limit its growth in market share.

(With inputs from Harshita, Neeshita, and Lovisha)