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Analyst tracker: Bank, financials remain apple of analysts' eyes; pessimism lingers around IT stocks

Data available with Bloomberg showed that most of the analyst optimism – measured as the percentage of analysts that have a ‘buy’ call on a stock – was centered around ICICI Bank, Larsen & Toubro (L&T), and ITC among others.

NOIDA / September 30, 2022 / 06:55 PM IST
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Analyst optimism lingered mostly around banks and financials as of September-end as credit growth peaked at as high as 16 percent and the condition of the Indian economy improved post-pandemic.

Data available with Bloomberg showed that most of the analyst optimism – measured as the percentage of analysts that have a ‘buy’ call on a stock – was centered around ICICI Bank, Larsen & Toubro (L&T), and ITC among others.

ICICI Bank, which is one of the best performing bank stocks right now, has 52 ‘buy’ calls and just one ‘hold’ call, translating into an optimism score of 98 percent. The company has been delivering expectation-beating earnings for a while now and has become the apple of analysts’ eye. Analysts have praised its top-of-the-class net interest margins and investments into technology that is reaping rewards now.

L&T also has an optimism score of 98 percent with 40 ‘buy’ calls and a solitary ‘sell’ call. The stock is regarded as the best play on the infrastructure boom in India. The company is building some of the most important projects in the country including the Mumbai-Ahmedabad Bullet Train project. It also has maintained its run rate of fresh orders resulting in revenue visibility, analysts underline.

Cigarette maker ITC is also one of analysts' top favourites with an optimism score of 97 percent. As many as 35 analysts are bullish on the stock with one analyst with a ‘hold’ call. The stock is also one of the best blue-chip performers of the current calendar year with returns of 51 percent.

Housing Development Finance Corporation (HDFC) and State Bank of India (SBI) are two more stocks in the financial space that have the same optimism score – 96 percent. HDFC – the largest mortgage lender in India – is in process of merging with HDFC Bank which analysts

believe will be value accretive. Hence, the stock has also attracted investors. Meanwhile, SBI which is the largest bank in the country is riding on a high credit growth phase and relatively cheaper valuations.

Two top life insurers – SBI Life Insurance and HDFC Life Insurance – are the next two stocks where optimism is high. Insurance penetration in India remains very low and it is likely to go up as awareness increases. Analysts are banking on this trend and are bullish on these stocks.

Sun Pharmaceutical Industries, UPL, and NTPC are others in the top 10 where analysts are most bullish. Analysts believe Sun Pharma is likely to gain from ramping up sales in the US. It will also benefit from rupee depreciation. NTPC is investing heavily in new energy which will become another source of revenue for the firm and hence grabbed attention.

IT, metals continue to face flak

For another month, metals and IT sectors remained the pockets where analysts were not as bullish. JSW Steel, Wipro and Shree Cement were among the top stocks where the pessimism score was the highest. Pessimism score refers to the percentage of analysts that are not bullish on a stock.

JSW Steel, which is a victim of rich valuation and declining metal prices, has 17 ‘sell’ calls and 9 ‘hold’ calls compared to 7 ‘buy’ calls. The steelmaker is also likely to face a slowdown in export sales as western countries will be under recessionary pressure that will lead to fall in demand.

Wipro, along with Tata Consultancy Services (TCS) and HCL Technologies, are IT stocks that are part of this list. IT companies, being export-facing, are also bearing the brunt of the slowdown in Europe and the US. Any recessionary phase leads to lesser tech spending and hence analysts have cut down their expectations.

Besides them, FMCG majors Britannia Industries and Nestle India are others that are seeing a concentration of pessimism. Both companies have been struggling with a slowdown in demand in rural India, which is likely to become even more challenging as kharif sowing has been lower than expectations. That means rural income is likely to be lower going ahead. Rich valuations of both stocks is also playing spoilsport for them.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Shubham Raj is a journalist with over five years of experience covering capital markets. His last stint was with The Economic Times where he wrote on daily happenings in stock markets and led IPO reportage. He also wrote on mutual funds and cryptocurrencies.