From August sell-off to September caution, analysts seem to be favouring safety and stability

Volatility dipped 4 percent to 13. The broader indices also performed well, with the BSE Midcap up nearly 1 percent and the BSE Smallcap rising 0.4 percent.

After a sharp sell-off in early August, the market not only rebounded but also hit new highs by the end of the month. However, September's start has been muted, with global growth concerns intensifying, making a rate cut seem more likely. While high valuations persist, domestic fund flows have kept the momentum going, for now. What’s next?

“It’s risky to assume every dip will be bought… the market’s showing signs of fatigue,” warned Gautam Shah of Goldilocks Premium Research. Atul Suri echoed a similar sentiment, suggesting that a failure to stay above August lows could force a reassessment of market conditions.

As for stocks, with few pockets of value for investors to seize, the overall sentiment seems to be leaning toward more stable and predictable outcomes. Financials remain in favor due to relatively low valuations and modest growth, while healthcare is attractive for its defensive characteristics. IT continues to receive mixed verdicts due to an unconvincing growth trajectory. This was the broad message conveyed in Moneycontrol’s Analyst Tracker for August.

Also read | IT giants top the Maximum Pessimism list despite quarterly gains

Financial stocks show strength amid optimism

In the financial sector, Shriram Finance and HDFC Life have emerged as notable stocks on analysts’ radars. Shriram Finance has maintained a bullish outlook due to its strong guidance of surpassing 15 percent year-on-year AUM growth for FY25 and improved asset quality following its merger with Shriram Transport Finance and Shriram City Union.

Meanwhile, HDFC Life's strong premium collections, robust growth in new business, and lack of significant regulatory overhang have kept analysts optimistic, with the company focusing on expanding its sales channels and enhancing its product offerings.

IT stocks face cautious outlook despite green shoots

Not all sectors are basking in optimism. The Indian IT sector continues to face a cautious outlook, with heavyweights like Wipro, Tech Mahindra, and LTIMindtree among the most pessimistic stocks in August. Despite reporting some positive trends in their June quarter earnings, these companies received several ‘Sell’ or ‘Hold’ ratings from analysts due to concerns over plateauing global market share, slowing growth, and operational challenges.

Also read | Tata Motors, Bajaj Auto, Eicher Motors see upgrades, but there’s caution on Street

Auto stocks see tempered enthusiasm

The auto sector reflects tempered enthusiasm. While Tata Motors, Bajaj Auto, and Eicher Motors received the most analyst upgrades in August, this optimism follows a series of downgrades earlier in the year. Analysts remain cautious due to declining vehicle sales, rising costs, and high-interest rates affecting consumer demand. Despite their strong price performance over the past year, analysts believe such high returns are unlikely to continue in FY25.

Healthcare sees valuation-driven downgrades

Apollo Hospitals, a major player in the healthcare services space, saw the most analyst downgrades in August, even after a strong Q1 earnings show. The downgrades were mainly driven by valuation concerns rather than growth potential. Although Apollo has several positive catalysts, such as reduced losses in its digital businesses and improved hospital margins, analysts believe these factors have already been priced into the stock’s valuation. As a result, brokerages like Elara Capital and Nomura downgraded the stock, citing limited upside potential from current levels.

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