Short Call: Indian markets are overflowing with excitement right now however, is this excitement moving in a risky direction?
A brokerage company said in a recent study that certain sectors have positive long-term growth prospects for India’s economy.
However certain sectors are witnessing enormous growth without solid fundamentals. The Nifty’s P/E ratio for the last 12 months is at 24, which means it is more than its average over the long term of 22.5x.
Over half of the Nifty 50 stocks are trading at or above a PE of 30x. The Buffett Indicator which measures the market capitalization versus GDP, is currently at 143 percent.
This indicates that the market is in a bubble. Yet, the domestic institution investors (DIIs) continue to push the market upwards.
In the economic survey 2023 to 2024 which refers to the Buffett Indicator, the reader was cautioned that a sudden increase in the level of confidence and speculative activity on the market could be an indication of risk.
Experts believe that the high value of the “Buffett Indicator” isn’t always a sign of a crash. Instead, it could indicate the market’s volatility.
Analysts also say that there is a constant flow of growth within the Indian market by DIIs that are aiding in keeping the market in a good place.
However, one thing to note is that the market is that it can rise gradually and then fall quickly at any moment.
Table of Contents
1. Jubilant Ingrevia
The share of Jubilant Ingrevia Ltda closed at Rs 712 on September 6, down 2.75 percent. A second broker has boosted the price target of this stock and also gave it a “Buy” rating.
Bulls claim it is the world market leader in certain areas of specialty chemicals. It is the cheapest cost of manufacturing pyridine which gives it a distinct advantage over its competitors.
Additionally, the company is performing backward integration to reduce the cost of its raw materials. The strong demand for pharma and agrochemicals is helping the company maintain its rapid growth.
However, experts say the company faces danger from fluctuations in the price of acetic acid which could affect its key chemical intermediates business. This is an important part of the company’s profits.
The restrictions imposed by regulators on certain products as well as the rapidly growing competition in new areas like Diketene Chemistry could make it vulnerable to market dominance along with profits in danger.
2. Vodafone Idea
Vodafone Idea Ltd share closed at Rs 13.24 on Friday, September 6, down 11 percent. The third brokerage firm has given a ‘sell’ rating on the stock.
The third brokerage claims that the stock could be down by around 85 % to the level of 2.5 rupees. Bulls claim that the firm plans to get a loan of 25,000 crore rupees, however, the date for this hasn’t been established.
If it is believed that the firm will increase its price every year, at minimum for 2 years in the future then its EBITDA will likely be around 41,200 crore rupees by the end of the end of FY 2027.
However, analysts believe that the amount of capital that the company has raised recently is a positive sign in a sense. However, it’s not enough to stop the decline in market share of the company.
The competition is predicted to invest 50 % more on capital expenditures over the next 3 to 4 years, cutting the market share of Vodafone Idea by 3 %.
The company must increase its average income per user (ARPU) to between 200 rupees to 270 rupees to reach a break-even cash flow level, which is a distant possibility in the short term.
3. Godfrey Phillips
Godfrey Phillips India Ltd’s share closed 11 % higher at 7,115 rupees on the Friday of the 6th of September. The company may consider giving out bonus shares in the ratio of 2:1 at the coming AGM.
As of now, Bina Modi has been appointed the new executive director for the business. It already sold the retail business 24/7.
Bulls believe that the bonus issue will not have a significant effect on market capitalization but it’s a positive emotional good news for investors.
However, bears believe that the constant reports about the company may alter the fluctuation of its stock, which was already placed on the long-term watch listing (ASM Framework) by the exchanges.
Other than that, over the past 5 years, the company’s annual revenue increase has remained at a single digit.
Quick Fact
| Company name | Jubilant Ingrevia |
|---|---|
| Share closed at | ₹712 |
| Date | September 6 |
| Change | Down 2.75% |
| Rating | Buy |
| Market position | Leader in specialty chemicals |
| Cost advantage | Lowest cost in pyridine production |
| Strategy | Backward integration for cost reduction |
| Growth factors | Strong demand in pharma and agrochemicals |
| Risk factor | Acetic acid price fluctuations |
| Other risks | Regulatory restrictions, rising competition |
Vodafone Idea
| Company name | Vodafone Idea |
|---|---|
| Share closed at | ₹13.24 |
| Date | September 6 |
| Change | Down 11% |
| Possible target price | ₹2.5 |
| Rating | Sell |
| Loan plan | ₹25,000 crore (date not established) |
| EBITDA estimate | ₹41,200 crore by FY 2027 (if prices increase) |
| Competition plan | 50% more CAPEX over next 3-4 years |
| Market share impact | 3% decline predicted |
| ARPU requirement | ₹200-₹270 to reach break-even cash flow |
| Current challenge | Capital raised not enough to stop market share loss |
Godfrey Phillips
| Company name | Godfrey Phillips |
|---|---|
| Share closed at | ₹7,115 |
| Date | September 6 |
| Change | Up 11% |
| Bonus issue plan | 2:1 at upcoming AGM |
| New executive | Bina Modi appointed as executive director |
| Business sold | Retail business 24/7 sold |
| Market impact | Positive emotional effect from bonus shares |
| Risk factor | Stock placed on ASM Framework by exchanges |
| Revenue growth | Single-digit annual revenue growth over 5 years |
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