Autos are back in favour among analysts; defensives see downgrades

Over the past one month there have been hardly any upgrades with the exception of Mahindra & Mahindra Ltd and Divi's Laboratories Ltd while most Nifty stocks have seen downgrades inching up, reveals Moneycontrol Analyst Call Tracker June 2022, powered by data sourced from Bloomberg.

In M&M, two analysts graduated their recommendation from Hold to Buy, indicating slight bullishness. While the number of stocks in which downgrades have taken effect outweigh the upgrades, recommendations have not changed in large numbers over the past month despite the changing economic landscape with heightening uncertainty around commodity prices and pressure on margins across several sectors. Divis Laboratory, a darling of the bourses in the post-pandemic rally, perversely entered the list of upgrades over the past month as one analyst with a sell rating earlier dropped out of the coverage list. Otherwise, it figures among the list stocks seeing maximum pessimism where proportion of sell and hold recommendation of the total is among the highest.

Seven stocks -- Wipro, Power Grid Corp of India, Grasim Industries, Tata Consumer Products, Sun Pharmaceutical Industries, Infosys Ltd, Hero MotoCorp, Nestle India, which got downgrades in the last one month largely belong to defensive stocks where the run up has been huge over the last one year. Recently the rising interest rates globally and increasing risk of slowdown in the US economy has led to earnings downgrade.
Contrarian upgrades over the last one quarter
Over the last quarter, Grasim Industries and Ultratech Cement got upgrades from analysts. Grasim Industries became the most preferred stock last quarter after it announced it had been planning to enter the paints sector for the past few years. Through white cement and putty, Grasim is already present in 35,000 distribution points which is half of Asian Paints. Post commencement at end-FY24, Grasim expects the segment to break-even in the subsequent 2-3 years and take another 2-3 years for better margins. Grasim Currently has 8 buys.

For Ultratech Cement, the stock has corrected recently which made its valuation favorable and it is currently trading below 10 year and five year average price multiple. Ultratech now has 40 buys out of 47 total analysts recommendations from 37 buys out of 46 total analysts.
Contrarian upgrades over the last one year
Last year's worst performing Nifty stocks such as Shree Cement and Dr Reddy's have seen upgrades from analysts. More pronounced upgrades were in the auto sector. Auto stocks like Bajaj Auto and Hero MotoCorp got the more bullish calls from analysts. Last quarter auto firms were under pressure amid expected margin pressure due to sharp rally in the commodity prices as they have high exposure to aluminium and precious metals. However, metal prices have corrected substantially from the peak; this bodes well for margins from the second quarter of FY23.

Bajaj Auto currently has 39 ‘buy’ calls from a total of 53 analysts while it had 30 ‘buy’ calls from 49 analysts during June 2021. Similarly, Hero MotoCorp had 27 ‘buy’ calls from a total of 48 reports in June 2021 which has now increased to 33 ‘buy’ among a total of 49 analysts.

Companies like Grasim Industries, HDFC Life Insurance, HDFC Ltd, Indusind Bank, Hindustan Unilever also saw upgrades ranging between 2 – 25 percent in percentage terms from June 2021.

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