Analysts pile on downgrades on metal, pharma names, IT also suffers as outlook deteriorates

Metal stocks have not just fallen out of favour of investors but analysts as well. Some of the top steel makers in the Nifty index have seen the most downgrades in ratings from sell-side analysts in the last one year period, according to data sourced from Bloomberg. 

Metals stocks also feature prominently among those that have been downgraded the most in the near past, i.e, last one quarter. They have been followed by some pharma names, whose outlook has also deteriorated as the pandemic has ebbed, the some information technology (IT) and utilities names, analysts believe the best may be over for many of them. 

Understandably, many of the names in the list are those that have seen or are still seeing input cost pressure – for instance Asian Paints. The war in Europe and fallout from the emergency monetary measures taken during the pandemic key culprit behind this. 

Bearish turn

In the last one year, drugmaker Divi’s Laboratories saw the most downgrades amid the Nifty companies. A hoard of analysts had turned bullish on the stock amid the pandemic, and the stock jumped nearly three-fold in the next 18 months of March 2020 crash. But as the pandemic started fading, analysts expecting loss of Covid-19 led revenue started downgrading it. High valuations also did not help the cause. As of June 2022, it had 14 ‘buy’, four ‘hold’ and five ‘sell’ compared to 16, one and two, respectively, a year ago.

JSW Steel is the second in the list of those that have seen the most downgrades in the last one year. A high valuations and plateauing demand has been the key reasons. It now has 11 ‘buy’, nine ‘hold’ and 13 ‘sell’ calls compared to 18, 7 and 7, respectively a year ago, according to Bloomberg data.

HCL Technologies is next in line, having seen third most downgrades owing to deteriorating outlook of the IT sector. High growth that these companies saw during the pandemic is tapering now. Moreover, talks of recession in the US and Europe will likely lead to tech spend cuts from clients, say analysts.

Among others that have seen the most downgrades are Bharat Petroleum Corp, Tata Steel, Infosys, Power Grid Corp of India, Tata Consultancy Services, Asian Paints and Cipla.

Most recent disappointments

Most of these stocks are also present in the top 10 stocks that have seen most downgrades in the last one quarter as well as one month. In the former list, first three spots are taken by JSW Steel, Tata Steel and Power Grid Corp of India. In the latter, Reliance Industries, Power Grid Corp of India and Maruti Suzuki India are the top three.