Stock Market Analysis: Key Focus Areas

HDFC Bank:

HDFC Bank shares are expected to be in the spotlight today. The reason? Foreign institutional investor (FII) holdings in the bank have dropped to 54.83% by the end of June. This is significant because it means HDFC Bank’s weight in the MSCI index will likely increase, giving FIIs more room to buy shares. If FIIs can buy another 25% or more within the RBI limit, the entire free float is considered for weightage. As HDFC Bank’s weight in MSCI rises, passive funds will start purchasing. Nuvama estimates that HDFC Bank could see inflows of $3-4 billion by the end of August, while Macquarie had earlier predicted up to $5.2 billion in inflows.

HDFC Bank shares have already risen by about 17% in June, suggesting that some market participants were betting on a drop in FII holdings.

The bank has underperformed in recent months mainly due to active foreign funds selling off. While the bank’s operational performance is solid, many foreign funds are reportedly unhappy with how the merger with HDFC was handled and the subsequent management communication.

The big question now is whether the massive buying by passive funds will lead to a rerating, as large-cap fund managers may not want to miss out on the rally.

Last July, mutual funds expert Dhirendra Kumar of Value Research was asked if continuous inflows into passive funds would make fundamentals irrelevant. He responded that while theoretically, people could keep buying even poor-performing stocks, actively managed funds still set the pricing, and passive funds follow that. He pointed out that HDFC Bank and HDFC stocks hadn’t risen much in the last two-and-a-half years despite being part of major indexes.

An interesting battle between active and passive fund managers seems to be on the horizon.

Hiring Trends:

Info Edge’s Jobspeak Index for June indicates that hiring activity has slowed down, hitting a six-month low. Hiring trends are down 8% both month-on-month and year-on-year. IT/software hiring specifically dropped by 5% YoY in June. This suggests that investors might need to lower their expectations for IT stocks.

IEX (Rs 185, -2.3%):

IEX released its business update for June.

• Bull Case: There was strong growth in total electricity volume, green market volume, day-ahead market volume, and real-time electricity market volume compared to the same period last year. The market coupling proposal may face challenges in implementation.
• Bear Case: Regulatory uncertainties could deter big investments. Earnings growth has been lackluster over the past two years.

Coal India (Rs 480, +1%):

Coal India reported an 8% increase in coal production for the June quarter, reaching 189.3 million tonnes.

• Bull Case: All subsidiaries posted production growth, with five surpassing their Q1FY25 targets. Despatches and average realization are expected to exceed Q1FY25 estimates.
• Bear Case: Supplies to the power sector have decreased due to sufficient stocks at power plants, which could impact the company.

Safari Industries (Rs 2,166, +3.42%):

Safari Industries announced plans for capacity expansion.

• Bull Case: The planned expansion will increase total capacity to 7 lakh pieces per month. A positive outlook on the hospitality, travel, and tourism industries is expected to boost demand for luggage.
• Bear Case: Delays in capacity expansion and weaker travel trends could pose significant challenges.

Marico (Rs 604, -2.6%):

Marico shares fell after CLSA issued a cautious outlook.

• Bear Case: Rising competition in urban areas for its oil and oats portfolio and limited growth potential, according to CLSA.
• Bull Case: Signs of recovery in rural consumption could help improve volume growth. The stock’s valuations are reasonable compared to industry peers.

(With inputs from Lovisha, Vaibhavi, and Veer)