Analyst sentiment, which is measured by the proportion of Buy/Hold/Sell ratings, has not changed much over the past year, domestic brokerage house Motilal Oswal observed in a recent report. It mentioned that the percentage of ‘buy’ ratings moderated to 71 percent in 2022 from 73 percent a year ago while the percentage of ‘hold’ ratings rose to 17 percent from 16 percent and ‘sell’ ratings climbed to 12 percent from 11 percent, a year ago.
The brokerage further highlighted that ICICI Bank, Maruti Suzuki and Bajaj Auto enjoy the highest coverage on the Street; while Hindustan Aeronautics, Abbott, Max Healthcare are the least covered stocks.
ICICI Bank, which tops the list, is covered by 53 analysts followed by Maruti, covered by 52 analysts. Meanwhile, Bajaj Auto, Axis Bank and IndusInd Bank are covered by 51 analysts each, informed MOSL.
Moreover, the brokerage observed that Hindalco, which is covered by 24 analysts, enjoys 100 percent ‘buy’ ratings along with Adani Ports and Max Healthcare (100 percent each), followed by SBI and L&T (98 percent each). Conversely, Yes Bank (7 percent), JSW Energy (9 percent), JSW Steel (19 percent), Divi’s Labs (20 percent), and Hindustan Zinc (20 percent) have the lowest percentage of ‘buy’ ratings, noted MOSL.
The report further stated that sentiment on Capital Goods, Private Banks, Healthcare, Real Estate, and PSU Banks has been positive with their coverages improving by 11 percent, 8 percent, 6 percent, 5 percent and 4 percent YoY, respectively.
Conversely, Metals, Utilities, NBFCs (due to a drop in coverage of HDFC), Telecom, Automobiles, Technology, and Oil & Gas have taken a hit, with their coverages dropping by 10 percent, 10 percent, 7 percent, 5 percent, 4 percent, 2 percent and 1 percent YoY, respectively, added MOSL.
Target price upside/downside
Based on the consensus target prices for the available top-100 companies, the potential upside stands at 17 percent (from the current free float market value of ₹90 lakh crore to a target market value of ₹105 lakh crore), noted the report.
According to MS, private Banks (+30 percent), Oil & Gas (+11 percent), Consumer (+8 percent), NBFCs (+7 percent), Technology (+7 percent), Automobiles (+6 percent) and PSU Banks (+5 percent) are likely to contribute the most to the potential target upsides of the top-100 stocks.
The top-15 stocks are projected to contribute 68 percent to the potential target price upsides of the top-100 set. ICICI Bank (+11 percent), Reliance Industries (+10 percent), HDFC Bank (+9 percent), Infosys (+6 percent), and HDFC (+5 percent) are the top stocks to contribute the most with respect to potential target upsides.
Meanwhile, stocks with the highest target price upsides are UPL (+42 percent), Zomato (+39 percent), SBI Life Insurance (+38 percent), LIC (+36 percent), ICICI Pru Life (+35 percent), and FSN E-Commerce (+35 percent), mentioned MOSL. The stocks with the most target price downsides are JSW Energy (-23 percent), Shree Cement (-10 percent), ABB (-5 percent), Cummins India (-4 percent), and Berger Paints (-3 percent), it added.
Upgrades and downgrades
Now that the December quarter earnings are over, the brokerage pointed out that going ahead the top five sectors are likely to contribute more than half of the earnings growth. These include Private Banks (+15 percent), Oil & Gas (+12 percent), PSU Banks (+10 percent), Auto (+10 percent), and Technology (+9 percent).
Overall, the earnings for the top 100 stocks are likely to jump 18 percent over FY23-25 based on consensus estimates, noted MOSL.
Sectors with the highest earnings CAGR are Telecom (+58 percent), Automobiles (+44 percent), NBFCs (+34 percent), Real Estate (+28 percent), and Cement (+25 percent), observed the report, adding that Insurance (+4 percent), and Utilities (8 percent) are the sectors likely to report an earnings growth in single digit over FY23-25E.
Among stocks, the brokerage mentioned that the top-15 stocks are forecasted to contribute 61 percent to the earnings growth of the top-100 set. Reliance Industries (+7 percent), HDFC Bank (+6 percent), HDFC (+6 percent), SBI (+6 percent), and Tata Motors (+5 percent) are the top stocks to contribute the most with respect to earnings, informed MOSL.
On the other hand, Coal India (-3 percent), and ONGC (-2 percent) are likely to have the most adverse contributions, it added.
Impaired by a relatively muted corporate earnings season and severe FII selling, India’s sharp outperformance in CY22 has started fading CYTD. “Corporate earnings were below our expectations in 3QFY23 led by weak demand and macro headwinds, with Financials and Autos holding the fort once again,” noted the report.
It further cautioned that the slowdown in consumption is a material concern if trends do not reverse immediately. However, markets are trading flat YTD and valuations are in their fair value zone with Nifty trading at ~18x FY24E EPS and thus offering room for modest upside if corporate earnings do not see material downgrades ahead, said MOSL.