Kotak Institutional Equities is surprised at the fervour with which investors are chasing power utilities.
"The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that are likely to get you where you want to go." - Benjamin Graham
Power utilities were the surprise winners of 2023, and the momentum in these stocks appear strong. The bull argument for the sector is best summarised by a recent Jefferies report, saying that peak power shortages will persist for 18-24 months at least. Not everybody is buying that theory. Contrarians include Kotak Institutional Equities, which is surprised at the fervour with which investors are chasing power utilities. Kotak trio of Sanjeev Prasad, Anindya Bhowmik and Sunita Baldawa put up two arguments: (1) The focus will likely be more on renewables than thermal, and the economics of generation for renewable power are not lucrative enough at the moment; (2) India has still not addressed the issue of distribution reforms and unremunerative electricity tariffs in several states, which raises questions about the viability (and value) of non-regulated electricity generation capacity.
Railtel Corp (Rs. 338.00, + 15 %)
The company has received an order of Rs 120.45 crore from South Central Railway for signalling and telecommunication works.
Bull argument: Growing order book (as of November 2023, it was Rs 5,000 crore) with the management confident of raising it by another Rs 2,500 crore during the one year starting November 2023, and the stock looks strong on the charts. The Street is still positive on the railways sector.
Bear argument: The stock has trebled in last nine months, appears to be pricing in most positives. Gains hereon will have to be hard won.
Kalpataru Projects (Rs. 709.20, + 8%)
The company bagged orders worth Rs 3,244 crore.
Bull argument: Consensus view is that real estate will continue to boom for a while. Growing order book is adding to investor confidence; Q2FY24 saw stable net debt and healthy execution across majority of businesses.
Bear argument: Revenue and net profit growth for the September quarter were below analyst estimates. Consistency in operating performance will be key to rerating.
Vodafone Idea (Rs 16, +20.75%)
Ahead of Elon Musk's India visit, market grapevine has it that he will tie up with Vodafone Idea to enable Starlink internet in India. However, in September, the telco had denied any stake sale to Musk, Amazon, or Verizon.
Bull argument: The stock has rallied on hopes of fundraise, which can help in debt servicing as well as 5G capex plans. ARPU has been increasing steadily over the past nine quarters. Technical levels suggest another 6 percent rally from the current level.
Bear argument: The company has missed the December deadline for fundraise. Debt levels remain high and subscriber base has been declining. Many experts have already declared the telecom market as a duopoly
Go Fashion (Rs 1251, -3%)
The stock fell amid heavy trading volumes. Volumes were seven times the 20-day average, but no significant bulk deal has been recorded.
Bull argument: Consistent topline growth. Mutual funds have been increasing stake over the past six quarters. The stock has done well since Sequoia's stake sale. Stands to benefit from growing discretionary purchases as per capita rises.
Bear argument: Highly competitive industry, with investors moving towards online shopping. Store economics key to watch. Expensive valuation compared to peers.
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