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L&T, financials charm analysts; FMCG, tech stocks fall from grace

Since mid-June, L&T has rallied 31 percent. The company is one of the biggest beneficiaries of the government's thrust on improving public infrastructure in the country.

September 09, 2022 / 09:44 AM IST
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Larsen and Toubro (L&T) was the only Nifty stock with every analyst holding a bullish view on it as of August-end, data available with Bloomberg shows. All 41 analysts tracking the stock advise buying it. ICICI Bank and ITC – two of the Street favourites in recent months given how much they have rallied – followed with all but one analyst having a ‘buy’ rating on them.

Since mid-June, L&T has rallied 31 percent. The company is one of the biggest beneficiaries of the government's thrust on improving public infrastructure in the country. As of June-end, the consolidated order book of the group was at a record Rs 3,63,448 crore, with international orders having a share of 28 percent.

ICICI Bank, which is arguably the best performing large private bank, continues to hold a favourable position among analysts. Out of 53 analysts who track the stock, 52 have BUY calls while one has 'hold' call, the data shows. The stock has also delivered 27 percent since mid-June when the market had hit a recent low.

ITC, which is on a dream run since February, is the third most favourite stock among analysts with just one of 37 analysts having a 'hold' rating while others advising to 'buy' the stock. ITC is the cheapest available FMCG stock and the company has seen a strong growth in revenue. The outlook for its hotel, and paper businesses have also improved.

HDFC, which is in process to merge with HDFC Bank, and SBI are the next two stocks where analysts see value emerging. The former is the largest mortgage lender whose merger is likely to be value accretive, according to money managers and analysts. Whereas the latter is the largest banking entity in India that many analysts believe is undervalued. Both these stocks are also beneficiaries of increased credit growth in recent quarters.

SBI Life Insurance Co, Sun Pharmaceutical Industries, UPL, NTPC and Apollo Hospitals Enterprise are the next five names where analysts are overwhelmingly positive.

SBI Life delivered strong growth in June quarter. Analysts say the company has diverse distribution network, has been investing in technology which provides a robust base to ensure steady growth. On the other hand, Sun Pharma is attracting analysts thanks to its growth in speciality segment. NTPC has been adding capacity in not just traditional sources but also in solar, which will likely to reap rewards going ahead.

Analysts are positive on Apollo Hospitals as they see its superior positioning in the pharmacy segment through and enhanced outlook for healthcare services segment to work for the stock.

IT remains out of favour

JSW Steel continues to have a high number of 'sell' and 'hold' calls – 16 and 9, respectively – as analysts find it to be overvalued, especially given the diminishing growth avenues for the steel sector. International metal prices are down 30-40 percent from their peak, which means steel companies are getting lesser revenue on selling the same amount of steel.

Sector-wise, IT has the largest representation among those stocks where analysts are most pessimistic. As many as three names from the sector – Wipro, Tata Consultancy Services and HCL Technologies – are in the top 10 list. Analysts have turned cautious on the IT sector, fearing recession in their key western markets and declining margins for the last couple of quarters. Shares of IT companies have also seen heavy selling in recent months partly due to these reasons and in part due to global sell-off in technology stocks.

Similarly, analysts continue to be pessimistic about FMCG majors Britannia Industries and Nestle India. They believe them to be overvalued stocks. Both these firms have also struggled to grow in rural markets in recent quarters. Now the monsoon has been erratic, and with lower sowing rural income will likely be affected. This may add further to the woes of Britannia and Nestle in rural market.

Shree Cement and Asian Paints – two names serving the infra sector – have been facing declining margins, especially when raw material prices have been a concern. Though to be fair, some of these concerns have abated but analysts maintain their cautious stance on the stock.

Both names have also been facing pressure from new entrants in their respective industries, which may lead to lower margins for some time as competition will intensify, say analysts.
Shubham Raj is a journalist with over five years of experience covering capital markets. His last stint was with The Economic Times where he wrote on daily happenings in stock markets and led IPO reportage. He also wrote on mutual funds and cryptocurrencies.
first published: Sep 7, 2022 09:27 am