Contrarian calls | Profit-booking drags automobile firms but analysts bullish on sector

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26 Aug, 2025 12:21

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The domestic equity market took a beating in February as investors shunned risky asset classes on fears that the US Federal Reserve would lift interest rates higher than anticipated and for a longer period as it fights to rein in sticky inflation.

Relentless selling by foreign institutional investors (FIIs), who are seen shifting funds to China, and a withering sentiment among retail investors added to the woes for domestic equities. The freefall of Adani Group stocks in the aftermath of the Hindenburg report also dragged the benchmark indices in the red during February. Both the Nifty and Sensex declined close to 2 percent over the month.

But even as the spread of caution triggered profit-booking across most frontline sectors, automobile stocks continued to find favour with analysts. Bajaj Auto, Tata Motors and Mahindra & Mahindra were among the top 10 stocks that saw some contrast between price action and analyst action over the month.

Analysts upbeat about Bajaj Auto 

Bajaj Auto topped the list of contrarian upgrades as the scrip declined 6.23 percent in February, but "hold" ratings for the stock went down to 13 from 14, while "buy" calls remained intact at 34.

Investors exited the stock after the company announced plans to cut production at its export-focused plants by up to 25 percent. However, analysts stuck to their optimism on hopes of growth in volumes for the company's domestic premium segment amid a stabilisation in semiconductor supply.

Also Read: Analyst Call tracker: Why has Bajaj Auto remained a street favourite this quarter despite export pressures?

Tata Motors hitches ride on JLR 

For Tata Motors, "buy" calls rose to 27 from 25, whereas "hold" ratings came down to four from five even as profit-booking due to weak market sentiment pushed the stock down around 5 percent during the month. Nonetheless, a strong outlook for the automaker's luxury arm, Jaguar and Land Rover, made sure analysts remain positive on the stock.

"We expect JLR to consistently exceed 75,000 units quarterly run-rate hereon, which should result in the arm consistently generating free-cash-flows ahead. JLR would benefit from easing chip supplies driving scale, ramp-up of higher-margin products, and working capital reversal with rising scale," brokerage firm Ambit Capital wrote in its report.

Farm, SUV boost for M&M

Mahindra & Mahindra posted a price drop of 2.68 percent but the number of "buy" calls rose to 24 from 23. The foreign brokerage firm CLSA Asia-Pacific Markets upgraded M&M to "buy" and raised its target price by 2.2 percent.

According to CLSA, strong momentum across the farm and auto business, with expectations for sports utility vehicle (SUV) volumes to expand more than 20 percent in FY24 due to a strong order backlog, constituted reasons for the upgrade.

Among contrarian downgrades over February, Tech Mahindra gained around 9 percent even as investors lapped up the stock on dips after the sharp sell-off last year. This happened even as analysts chose to maintain a cautious stance with Hold ratings moving higher to 15 from 11 as Buy calls slipped to 21 from 25. Additionally, Tech Mahindra was the only stock to garner contrarian calls over a quarter.

PhillipCapital continues to foresee underperformance from Tech Mahindra, compared to its peers, on growth due to a weaker portfolio. The broking firm also remains wary of Tech Mahindra's aggressive M&A strategy.

Also Read: Analyst Call Tracker: Once a market darling, why investors turned lukewarm on Asian Paints

"Decision-making is slow and spending is getting impacted due to the macro environment. On margins, the previous target of 14 percent looks difficult to achieve in the near term, given lack of revenue growth leverage, stretched workforce, subcontracting costs at multi-quarter low, and Q1 seasonality – thereby ending FY23 at margins lower than FY22," PhillipCapital wrote in a note.

Meanwhile, "buy" calls also came down to 31 from 33 for Dr Reddy's Laboratories as "hold" and "sell" calls climbed one each over February, even as the stock gained over 2 percent. Pessimism for the stock seems to be emerging on account of concerns over price erosion in the US market.

Nuvama Insitutional Equities, which has a "hold" rating on the stock believes its acquisition of Mayne Pharma’s US retail generics portfolio for $90 million, despite being a low-risk foray, adds limited value for the drugmaker.

Nuvama also noted that ex-Revlimid, US growth for Dr Reddy's will face execution challenges in the face of price erosion and competition in existing molecules.

Quarterly changes

The highlight among contrarian calls over the quarter were heavyweights like Reliance Industries, Hindustan Unilever, Bajaj Finserv, State Bank of India and Titan Co. In terms of contrarian downgrades, there was no significant divergence between price action and analyst action.

Financials suffered the wrath of FII selling through the quarter, causing a decrease in price action. However, analysts struck positivity for the sector on the back of improving credit growth, strong fundamentals and the government's push towards capital expenditure.

For HUL, a surprise increase in royalty and an uptick in ad spends turned overhangs for the stock, resulting in an 8.60 percent decline. But most brokerages argue that the management's commentary on the demand front seems to be getting more constructive over the past couple of quarters, especially in terms of rural demand that is seen improving from the lows of June-July.

Systematix Institutional Equities has a "buy" rating for the consumer goods bellwether, with a target price of Rs 2,950.

"Our view is based on expectations of above-industry growth, continued premiumisation and strategic initiatives by HUL. Despite the increase in royalty which could be a near-term overhang, we find HUL a better bet than multiple mid-cap FMCG peers to play the impending rural recovery and a pick-up in consumer goods consumption across categories," the brokerage noted.

A similar trend was seen in heavyweight Reliance Industries as upgrades for the stock rose 5.93 percent despite a 14 percent decline in price action. Weak market sentiment, selling by FIIs and a muted earnings report by the core oil-to-chemicals business were dampeners for the stock's price action.

Global research and broking firm Jefferies maintains a bullish stance on RIL and believes that the government's approval for the Green Hydrogen Mission should aid the company's green energy business.

Jefferies also valued RIL's green hydrogen business at $8 billion and believes any meaningful capital subsidy from the government would support the valuation of its green hydrogen foray.

Titan Co is the next stock in the list of contrarian upgrades over the quarter, with its price falling 9 percent, but Buy ratings edging higher to 27 from 25. The company had been posting robust results for the past few quarters, but lost sheen in the October-December period on account of higher gold prices, weaker wedding demand, and stronger competitive intensity.

JM Financial Institutional Securities, which has upgraded the stock to "buy", believes Titan's 16-17 percent drop from its recent peak provides a very palatable entry valuation that is lower compared to the average stock price over the past five years.

Also Read: Analyst Call Tracker: Why do analysts favour Titan even as investors lose interest in the stock?

The brokerage firm is also bullish on Titan's growth prospects. "What lends confidence to us is that Titan’s growth outperformance is more a factor of its own superior on-ground execution prowess than one that is dependent on market forces alone," it highlighted.

Yearly changes

On a year-on-year (YoY) basis as well, Titan Co was among the list of stocks that saw significant divergence between price action and analyst action. Bajaj Finance and Adani Ports and Special Economic Zone were other stocks that shared the spotlight.

In the aftermath of the Hindenburg report, shares of Adani Ports witnessed a steep correction as investors exited the scrip. However, cheaper valuations, coupled with a strong growth outlook for India's biggest port operator, fuelled optimism among analysts.

Also Read: Analyst Call Tracker: Why three auto stocks are winning over analysts amid price volatility?

Investors also kept away from Bajaj Finance on the back of its expensive valuations. But analysts continue to maintain an optimistic stance on the company’s digital transformation and consistent financial performance. The stock shed 11.47 percent last year, but Buy calls rose to 25 from 20.

Expensive valuations also dented JSW Steel as downgrades for the stock jumped 40.63 percent over the year, while price was up 7.63 percent. The company's higher debt also made analysts on the street wary of its upside potential.

Also Read: Analyst Call Tracker: Why Dr Reddy's acquisition of Maynes Pharma failed to cheer analysts?

Topping the list though was Coal India. "Buy" calls for the stock fell to 15 from 22, even as the price jumped 25.80 percent. A report by brokerage firm JM Financial cited expectations of a gradual cooling off of e-auction premiums and easing of international coal prices as reasons for its Hold rating.

Disclaimer: The views and investment tips expressed by 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.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.