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Analysts’ Call Tracker - July 2022

Uncertainty over global macros continues to weigh on stock markets across the world. Inflation worries are still guiding monetary policies, and the resultant tightening seems to have finally brought recession to the world’s largest economy’s doorstep, though there are divergent opinions about whether it is just a ‘technical recession’ that does not warrant an official declaration of the ‘R’ word. Whatever the final word on it, the sentiment is already playing out in the market with commodity prices continuing to drop. 

As usual, the markets are a good lead indicator of what’s coming, and one window to look through and spot the emerging trends is the Analysts’ Call Tracker for Nifty Stocks for the month of July 2022, sourced from Bloomberg.

We started this series last month and the sentiment hasn’t changed significantly since then. Pessimism continues to be strong and preference for safer bets remains. Banks are still the stocks analysts are most optimistic about, given the falling NPA numbers and rising credit-growth expectations. There are still stocks that drive opinion in their favour on the basis of their performance alone. IT stocks are bearing the brunt of recessionary fears and consumer stocks continue to battle with concerns around raw-material costs, though the companies have reported good numbers and price pressures are slowly easing. The charts below give you a bird’s eye view, and links therein should give you the full story.

Read footnotes for a lowdown on how to read the charts.
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Analysts are most optimistic about banks on falling NPAs, and expectations of credit growth and benign inflation. Then there are company specific calls based on their individual strengths, such as Larsen and Toubro for their strong order book and Sun Pharma for its specialty generics portfolio that could ride out a possible recession.

With rising input costs, increasing government intervention to curb inflation and talk of recession in the US and Europe, analysts are most pessimistic about key metal and IT names such as JSW Steel and Wipro. They are also cautious about stocks such as Shree Cement and Nestle India, on concerns around rich valuations.

In the last month, RIL saw the highest rise in upgrades, after delivering strong operating profits and profit margins in the June quarter. Though Asian Paints featured in the Maximum Pessimism list, seeing one of the highest percentage of ‘sell’ calls this month, the stock seems to be gaining ground over the past month going by the increase in share of upgrades.

Bajaj Auto tops the list with its high exposure to emerging markets and worries around a possible two-wheeler ban in Nigeria. Sentiment around the IT sector seems to be weighing on stocks such as Tech Mahindra, HCL Tech, Wipro and TCS.

After reporting healthy volume growth across segments this quarter, ITC has emerged the top name on this list. An IT stock has made it to the list this month, but a market expert suggests caution while treading this sector.

Steel and IT stocks have emerged as the two largest pockets where analysts have become more pessimistic over the last three months. From energy, BPCL and ONGC feature on this list, largely because of policy uncertainty.

Over the last year, confidence in auto stocks seems to have picked up since three auto companies feature in this list. Grasim continues to top the list, with the analysts confident about its expansion into adjacent categories.

Over the last one year, JSW has emerged as the top ‘sell’ candidate as analysts are increasingly concerned about its rich valuation and declining steel prices. Some pharma and IT names have also seen downgrades over this period.

There is just one stock on this list, RIL, which gained over 9% over the last three weeks after analysts started upgrading it following the government going easy with the windfall taxes for diesel and aviation fuel. The stock had fallen over 8.5% earlier between July 1 and July 13, around the time the tax was introduced.

Some of the top consumer, steel, pharma and IT firms in the Nifty index have seen the most downgrades from sell-side analysts over last month, even though the stocks outperformed benchmark indices.

Top stocks on this list–Hindalco, RIL, UPL and Bharti Airtel–have been tested by the macro environment but analysts continue to have faith in them. Grasim Industries’ plans to enter the paints sector, and Ultratech Cement’s correction to below its 10-year average PE multiple have gone down well with analysts.

Many consumer-related stocks such as Britannia Industries, HUL, Bajaj Finance and Asian Pains have seen downgrades over the past one quarter, amid input-cost pressures from volatile commodity prices.

Last year’s worst performing Nifty stocks such as Shree Cement and Dr Reddy’s have seen upgrades from analysts. Shree Cement, Ultratech Cement, UPL Ltd and Dr Reddy's saw upgrades ranging between 4–11 percent from July 2021.

Eight stocks–Power Grid Corp, Bharti Airtel, ICICI Bank, SBI Life Insurance, ONGC, TCS, Bajaj Auto and HDFC Bank–have been downgraded over the last one year.

How to read the charts:

Optimism is based on the percentage share of ‘Buy’ recommendations in total analyst recommendations filed with Bloomberg; pessimism is the share of ‘Sell’ and ‘Hold’ recommendations. Upgrades are an increase in the percentage share of ‘Buy’ in the total recommendations compared to what was a month ago; downgrades represent an increase in ‘Sell’ and ‘Hold’ out of the total recommendations. Contrarian Upgrades represent shares which have seen maximum increase in ‘Buy’ recommendations though their stock prices have fallen most (or risen least) during a given period. Contrarian Downgrades list shares that have seen an increase in 'Hold' or 'Sell' recommendations though their prices have risen most (or fallen least) during the given period. Reports are based on recommendations as of July 31, 2022. Source: Bloomberg.

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