Short Call | From MCX to Cathie Wood’s concerns; Thyrocare, REC, and UPL in the spotlight; Global metal shortfall woes
With oil prices expected to remain in the 90s for the foreseeable future, a nasty surprise from inflation is more likely than a good one.
People invest in stocks for two opposing reasons: faith in an enterprise’s future or concern that their capital may be lost due to inflation.” -Baruch, Bernard
Equity investors are gradually coming to terms with the notion that interest rates are likely to remain higher for a longer period of time. The Fed may not have to follow out its warning of more hikes, which is still hoped for. With oil prices expected to remain in the 90s for the foreseeable future, a nasty surprise from inflation is more likely than a good one. Mid and small caps, on the other hand, continue to exist in a parallel realm. They dipped yesterday, but not as much as the frontline stocks, indicating that believers in the buy-on-dips notion are still many.
MCX has stated that its new trading platform will be operational by the end of this month. Scars from its excessive license contract renewal with 63 Moons will stay on the profit and loss statement for some time, but the market appears to have moved on. Earnings projections do not support present values. Is there any more to the story?
According to management, competition exists, but discounts have been reduced. Companies are now attempting to provide a higher value for the same money. Thyrocare’s share price dropped the most in the last two years among diagnostic players. Analysts believe one reason was that it had previously expanded too quickly, mostly to increase valuation. Under the new management, a course correction is taking place, and the excesses of the past are being addressed. Thyrocare has an edge over its larger competitors in that its main presence is in tier 2 cities and beyond, where competition is not as fierce as it is in metro and tier 1 areas.
According to management, power demand is increasing steadily, but at a much slower rate than in the past in the thermal segment. Although competition is increasing, management prefers to focus on asset quality. That means lending at a reduced interest rate to the better-rated players. Those expecting continuous growth in net interest margins may be disappointed.
This year, the stock has been among the worst performers in the agrochemical sector, but the worst may be behind it. According to Citi, generic chemical costs are near to bottoming out, and a rebound appears to be on the way beginning in the first half of 2024. Stalwart’s Jatin Khemani shares a similar take on the industry. You may read it here:
Cathie Wood of ARK Invest is not one to shy away from stocks that appear to be overpriced by traditional standards, but she chose to draw the line at chip designer Arm’s IPO, calling it “overpriced relative to its competitive position.” Nonetheless, she believes the hype surrounding AI-exposed companies is justifiable and that “innovation is undervalued given the enormous opportunities ahead.”
Global copper and aluminum supply gaps may force prices to skyrocket in the next years, but steel prices may fall, according to mining.com, using Bloomberg New Energy Finance statistics. Copper supplies are anticipated to be 5.4 million tonnes short by 2027, while aluminum supplies are expected to be 30.7 million tonnes short. According to the analysis, steel supplies could be in surplus by 2027.
If OPEC+ does not compromise on its supply cutbacks, Dutch financial services company ING Bank anticipates Brent crude rising in the near future. At the same time, it predicts that oil prices would fall below $100 per barrel in the fourth quarter, with the average price at $92 per barrel, somewhat lower than the current Brent price of $94.26.