Mumbai: Analysts’ recommendations for front line stocks have seen some shakeup at the start of the new fiscal year with utility vehicle maker Mahindra & Mahindra Ltd. (M&M) rising to be the most preferred Sensex stock because of the brightening outlook for the rural India story.
Drug maker Sun Pharmaceutical Industries Ltd. on the other hand, has dropped down from being the third-most preferred stock a year ago to the fourth-least preferred stock as pricing pressures weigh on the sector which derives a substantial chunk of its revenue from US.
The analysis includes stocks which have the highest percentage of buys/outperform/add ratings from the Sensex pack of the total ratings for the respective stocks.
Data from Bloomberg showed that M&M has 95.24% or 40 of the total 42 analysts tracking the company, recommending a buy or outperform rating on the stock. It has 2 “hold” or “netural” rating and does not have any sell of underperform rating.
Jefferies upgraded M&M to buy from hold on 16 March, and raised the target price to Rs860 from Rs820 earlier, saying stock performance has lagged improvement in fundamentals factors for the company.
“Higher government spending on rural economy and infrastructure ahead of 2019 elections is likely to sustain tractor cycle—good monsoon is an additional catalyst,”J efferies India Pvt. Ltd. analysts Arya Sen and Ranjeet Jaiswal said in the note.
Tractor and light commercial vehicle (LCV) cycles have been stronger than expected and outlook remains positive, and margin has expanded over 100 basis points so far in the current fiscal year, Jefferies’ analysts said, adding that value of listed investments of the company have appreciated.
“Yet stock performance over 3/12 months has not reflected much of this. While we have medium-term concerns over PVs (passenger vehicles), capital allocation, sustainability of tractor cycle, the mispricing is a near-term opportunity, in our view,” Jefferies analysts Arya Sen and Ranjeet Jaiswal said in the note.
The stock is down 2.7% so far in the calendar year 2018, but has added nearly 14% so far in fiscal year 2018.
Bank of America Merrill Lynch’s (BofAML) belief in the rural story stems from the fact that the government is likely to respond to any actual/perceived loss of political ground by increasing social/rural expenditure and aggregate agricultural incomes are still growing year-on-year, but more importantly, agriculture is now a much smaller part of rural GDP.
“Our December Sensex target of 32,000 still implies downside—but sectors exposed to Rural India (two wheelers, cement, staples) should do relatively better. Amongst covered stocks, we like M&M, Hero MotoCorp and Hindustan Unilever,” Bank of America Merrill Lynch said in a note on 26 March,
On the other hand, Sun Pharma has 41.46% or 17 of 41 analysts rating the company a buy or an outperform, while 11 have a hold or neutral on the stock, and 13 have a underweight, reduce or sell. At the end of last fiscal year though, stock had 39 buys and just one sell rating of the total 46 ratings.
In the quarter ended December, the country’s largest drugmaker reported a sharp 75% plunge in net profit from a year before as pricing pressures in the United States, its biggest market, hit sales.
Sun Pharma’s US generics are impacted with strong competition in Derma portfolio of Taro Pharmaceutical Industries Ltd., competitive intensity in older generics, and supply disruption from Halol, Prabhudas Lilladher Pvt. Ltd. noted in a report on 14 February, while maintaining reduce rating on the stock.
The second and third most preferred stocks were leading private lenders ICICI Bank Ltd. and HDFC Bank Ltd., respectively. In terms of absolute number of buys, both these bank stocks had the highest number of buys/outperform at 50 each.
IT firms Tata Consultancy Services and Wipro Ltd. were the least preferred stocks and were at the bottom of the list.