As we draw close to the last leg of the earnings season, there seems to be little change in analysts’ preferences in terms of stocks and sectors. As has been witnessed in the past couple of months, stocks from the auto and financial space continue to remain the preferred bets among market experts.
Select auto companies continued to witness robust demand during the festive season and with pent-up demand for some models from the previous months still remaining unmet, experts continue to be optimistic about the auto space.
Ditto for stocks from the financial sector where rising interest rates and a strong focus on keeping the balance sheets healthy have provided further headroom for growth.
However, there are no clear winners among sectors, as we can see that there are a few stocks from the above-mentioned sectors that are part of the group that received the maximum downgrades from sell-side analysts over the last one year. This is as per the data sourced from Bloomberg.
Bloomberg tracks recommendations of sell-side analysts regularly. But sharing of reports and recommendations is voluntary; to that extent it is not fully representative of the market.
Maximum upgrades in the past year
As was the case last month (in September), the stock of Eicher Motors again topped the chart of maximum upgrades this month too. The stock retained the confidence of analysts as its “bread and butter” Royal Enfield motorcycle continued its dominance in the large engine capacity bikes segment.
“Royal Enfield sales volume increased by 60 percent in FY23 till date and the softening raw material prices helped margins which brightened the outlook for the company,” said Anmol Das, head of research, Teji Mandi, an online portfolio management services firm.
Also, the revival seen in the demand for commercial vehicles augurs well for its joint venture with Volvo, VE Commercial Vehicles.
No wonder, then, that most brokerages consider Eicher Motors as a must-have stock in one’s portfolio and 35 analysts have recommended the stock with a ‘buy’ rating compared to a mere 18 ‘buys’ a year ago.
The ‘sell’ recommendations have reduced from 16 a year ago to just four now while the ‘hold’ ratings have gone down to 9 now compared to 12 at the same time last year.
The stock that has retained its second spot among the pack of maximum upgrades is private insurer, HDFC Life Insurance Company.
The company reported a 19 percent on-year increase in its standalone profit after tax to Rs 326 crore for the quarter ended September 30, 2022. Net premium income was up 14.6 percent year-on-year to Rs 13,111 crore.
Its value of new business, a measure of the likely profitability from the new business, grew 27.6 percent in the first half of the current fiscal and its embedded value, which indicates future cash flows, was up about 15 percent on-year.
The stock is recommended a ‘buy’ by as many as 32 analysts versus 27 a year ago and doesn’t have any ‘sell’ recommendation on it.
Index heavyweight Reliance Industries moved up two notches from last month to third spot after a robust growth in its consumer, telecom and chemicals business enthused investors even as its oil business was impacted by a ban on exports and higher oil prices.
The stock got 29 ‘buy’ recommendations compared to 20 last year. The number of ‘hold’ recommendations was down to 4 from 11 a year ago and ‘sell’ ratings have come down to 3 from 5.
Diversified giant, ITC Ltd had 33 ‘buy’ calls as against 28 a year ago and it doesn’t have any sell call this year.
ITC is clearly diversifying into high-potential areas using the large cash flows coming from its cigarettes division. Thus, “it offers a diversified portfolio of businesses and provides exposure to the Indian consumption and agri tech growth vectors”, said Vikas Gupta of OmniScience Capital, an investment management firm.
Titan Company, Kotak Mahindra Bank, Maruti Suzuki, Nestle, Grasim and Bajaj Finance are other stocks that are part of the pack that received maximum upgrades over last year.
Maximum upgrades in the last one quarter
HCL Technologies received the maximum upgrades during the past quarter. It has 32 ‘buy’ calls compared to 28 in the previous quarter. The ‘sell’ calls have come down from 6 to 3 for the IT giant. In terms of percentage, the company received a 'buy' rating from 67 percent of the analysts who track the company as compared to 58 percent a quarter ago.
With the attrition rate peaking, higher capacity utilisation will aid margins. “The growth rate is expected to accelerate as the digital business becomes a larger contributor of the overall revenues while still growing at 20-30 percent growth rates,” added Gupta. The stock is also trading at a discount to its intrinsic value, which makes it an attractive ‘buy’.
HCL Tech was followed by Eicher Motors that received favor from 73 percent of the analysts as compared to 66 percent and HDFC Life Insurance which was favored by 94 percent analysts as compared to 89 percent last quarter.
Nestle India and Titan occupied the fourth and fifth spots with the increases of 5 percent (58 percent analysts recommend a buy) and 4 percent (75 percent analysts have a 'buy'), respectively. Titan is witnessing strong all-round growth through its focused omni-channel strategy across jewellery, watches and eyewear; new growth drivers like Caratlane, Titan Eye+, Taneira; and its entry into high-growth segments like wearables.
Maximum upgrades in the past month
After being beaten down over the past few months, the IT pack has delivered strong earnings during the quarter and is again finding favour among experts. HCL Technologies topped the chart as it got a 'buy' rating from 67 percent of the experts compared to 57 percent over the past one month.
India’s second largest IT services company, Infosys, occupied the second slot as got 43 ‘buy’, 4 ‘hold’ and 2 ‘sell’ calls compared to 40 ‘buy’ recommendations last month.
FMCG major Nestle India came in third with a 5 percent rise in upgrades over last month, 58 percent buy calls compared to 53 percent a month ago. It witnessed the highest sales growth during a quarter in the last five years in the three months to September. All its business categories witnessed double-digit broad-based growth, the company had said in its earnings release.
Maximum downgrades in the year
The commodity prices continue to be soft given the uncertainty shrouding the global economic growth. As a result, the metal stocks continue to face pressure.
As seen in the previous month, steel major JSW Steel was at the top of the pack that witnessed maximum downgrades over last year. Its ‘buy’ calls reduced by 43 percent during the past one year with only 6 ‘buy’ calls now (18 percent of the analysts) as compared to 20 a year ago (61 percent of all the analysts).
State owned oil marketing company, Bharat Petroleum is unable to generate much interest from the experts after the government shelved its divestment plans and the volatility in crude prices hampered its margins. It saw its ‘buy’ calls getting reduced by 24 percent to 26 (70 percent of the analysts) from 34 (94 percent analysts) last year.
The IT services giants Tech Mahindra and Wipro continue to remain in the blind spot despite their valuations reaching a comfortable level.
Experts are negative on Tech Mahindra due to its high perceived exposure to Europe and the UK. Its 'buys' are down to 31 from 42 from last year.
Britannia Industries, Tata Steel, Hindustan Unilever, HCL Tech, Bajaj Auto were the other constituents which saw a double digit increase in their downgrades.
Quarter on quarter downgrades
Bajaj Finserv seems to be losing the confidence of market experts as even as the total consumer franchise is growing, the new loan bookings seem to be on a decline. The company saw a its ‘buy’ ratings going down to 6 (67 percent of all the analysts who track the company) from 8 (80 percent analysts) a quarter ago.
Britannia Industries saw its downgrades increase by 13.2 percent with 20 ‘buy’ and 16 ‘hold’ calls compared to 24 ‘buy’ and 10 ‘hold’ a quarter ago.
The performance of the company continues to remain under pressure due to usage of high cost inventory of wheat and edible oils. However, experts expect the margins to bottom out now and start improving from the coming quarter.
“High raw material prices distorted the margins over last year, but the raw material prices have started to soften which will lead the recovery”, added Das from Teji Mandi.
Bharat Petroleum, Hindustan Unilever (HUL) and JSW Steel were other stocks among the top five which saw maximum downgrades during the quarter. Bharat Petroleum saw its downgrades rise by 11.3 percent ('buys' reduced from 31 to 26), HUL by 9 percent ('buys' down to 28 from 31) and JSW Steel by 6.6 percent.
Month on month downgrades
FMCG giant HUL earned the dubious distinction of seeing the maximum downgrades during the past one month with a 7 percent increase. Its ‘buy’ calls were down to 28 from 31 last month, ‘holds’ increased to 11 from 9 while there was one addition to the ‘sell’ rating.
Experts suggest that the “results of HUL (for the September quarter) show FMCG sector caught in high inflation-low demand squeeze” as the rural demand continue to surprise with slowdown in many rural areas of the country. The high inflation in the country is also playing truant for the FMCG companies.
Tata Motors saw its 'buy' going down by one from 27 the previous month as the performance of its subsidiary Jaguar Land Rover (JLR) continue to remain impacted by the chip shortage and also because of recession fears in its main markets of Americas, Europe & China.
Wipro and IndusInd Bank made up the list of top 5 stocks that witnessed maximum downgrades on a monthly basis with Wipro seeing its 'buy' going down to 13 from 15 and 'sell' increasing from 17 to 20 now. In case of IndusInd Bank, it has 43 'buy' and 6 'hold' as compared to 44 'buy' and 4 'hold' a month ago..
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