Short Call: Bulls brave banking woes; Blue Star in pink; Balakrishna, Dalmia Bharat, bank stocks in focus

Bulls rule the market.

"It's not earnings changes that cause stock price changes, but earnings changes that come as a surprise." - Howard Marks

It remains advantage bulls for now, Friday’s weakness notwithstanding. The banking story may have taken a temporary knock because of the RBI move to curb unsecured lending, but there seems to be enough other stories to chase. Or, so one may think. Because when there is too much money in the system and not enough ideas, old wine in new bottle works fine, always.

Blue Star

It may not have been the best of summers for the air-conditioner industry and winter is not the best of times either. That hasn’t stopped the bulls from bidding up Blue Star shares. Competition remains intense, with market leader Voltas trying to claw back its lost pie. The management is hopeful of a 20 percent growth, compared to an industry growth of 15 percent. And they don’t see sales slowing down in this half of the year. The Q2 numbers were robust and that seems to be giving the bulls the confidence to back the stock. Most analysts are confident on Blue Star, but watch out the spike in commodity prices, surge in competitive pressure, and delay or failure of new products, they warn.

Balakrishna Industries

The stock was slammed by analysts after disappointin g first quarter numbers, but has steadily been rising since then. What’s working for the company? Strong uptrend in most of the auto stocks and easing of crude prices are the two main drivers. And, while profits this year have been just about OK, the company is consistently reducing its debt and seeing an improvement in its RoE. Technical analyst AR Ramachandran tells Short Call that the stock is on the verge of a breakout on the daily charts with resistance at Rs 2,635 and support at Rs 2,546.

What’s next for banking stocks?

Banking and non-banking finance stocks tanked on Friday after the RBI tightened norms for personal loans and credit cards to check the unbridled

growth in this segment. All the banking indices concluded in the red with the Bank Nifty falling 1.3 percent. Morgan Stanley warned that the RBI's action would push up borrowing and lending rates. According to Geojit Financial Services, this fall is likely to be short-lived since the profitability of the leading banks is unlikely to be impacted.

Further, market experts believe that housing finance stocks could be tactical beneficiaries, as they remain unaffected by new RBI norms. Kunal Shah of LKP Securities has placed support for Bank Nifty at 43,300-43,250.

SBI Card

Tumbled 5 percent on Friday following the RBI’s announcement to increase risk weightage for personal loans and credit cards. SBI Card is grappling with worries about asset quality due to legacy loans. Following tepid Q2 numbers, the stock had fallen over 7 percent on bearish ratings by many analysts. The management, however, has said that despite an expected 4 percent reduction in capital adequacy because of the RBI rule, they don't anticipate a significant impact on their cost of funds for the current financial year.

Dalmia Bharat

A long build-up in the stock, highest since the start of the November series. Short-covering indicates further upside potential. According to technical analysts, the stock has decisively closed above the 50-simple moving average (SMA) of Rs 2,220 mark for the uptrend to sustain. An immediate hurdle is expected at 2,300, followed by the 2,375-level. The 200-SMA at 1998 is functioning as medium-term support, say technical analysts.

Wonderla Holidays

The stock is up 16 percent over the last one month and has nearly trebled over the last 11 months. Q2, a traditionally weak quarter because of monsoon, was not too bad, with revenue up 17 percent. Arun K Chittilappilly, managing director of the company, said the Odisha park is expected to open in September 2024, and the Chennai park, their biggest one may open in September 2025. The management also expects a 10-12 percent average realisation per user (ARPU) growth in FY 2024. Domestic players seem upbeat on the stock, increasing their stake from less than 1 percent to 4.26 percent. FIIs have used the rally to trim their stake.

Strong cash flows

BSE500 cash flows continued to firm up in the quarter gone by, according to Emkay Global. At an aggregate level, operating cash flows (OCF) growth was at 135 percent YoY, while free cash flows grew 78 percent. The OCF/EBITDA ratio has bounced from the abysmal 38 percent in 1HFY23 to 88 percent (FY23: 77 percent), probably implying that the worst of working-capital pressures are now over. Emkay’s view is that the volatility in input prices was probably the cause of stress in 1HFY23 and cash flows are now normalising.

Contributed by Anishaa, Yash, Sucheta and Ananthu. Edited by Santosh Nair.