Blue-chip stocks have seen sharp cuts in their target prices, with half of the Nifty 50 universe seeing over 15 per cent cuts in targets. Overall, the index constituents have seen 2-60 per cent reduction in analysts' consensus targets, with broking houses factoring in the risks to earnings amid the coronavirus-induced lockdown.
According to data from Bloomberg, banks have seen among the sharpest cuts in target prices -- between 16 and 60 per cent. Among the stocks, IndusInd Bank has seen target price revised from Rs 1,624 from beginning of the year to Rs 624, a 61 per cent cut.
“The banking sector is seen as a proxy to economic activity. However, the current environment has raised concerns on credit growth and asset quality of banks, possibly coming under pressure,” said Sonam Udasi, senior fund manager, Tata Mutual Fund (MF).
“Some sectors will come back to normal after few quarters while some like aviation, realty and banking will take time, maybe beyond FY21,” said G Chokkalingam, founder of Equinomics Research and Advisory.
Apart from banks, the auto sector has also seen a sharp revision in targets. For Tata Motors, the 12-month target price has been adjusted 42.5 per cent lower since beginning of the year. For Maruti Suzuki, the target has been slashed by 21 per cent. Other prominent automakers have seen a 12-26 per cent cut in targets.
“The auto sector was already facing certain challenges as the cost-push caused by BS-VI rollout and insurance cover for two-wheelers, was impacting demand. The Covid-19 outbreak has led to both demand and supply chain disruptions for the sector,” said Deepak Jasani, head of retail research at HDFC Securities.
For non-bank financial companies (NBFCs) in Nifty, price cuts are in the range of 10-25 per cent. Bajaj Finance has seen the largest cut, with analysts anticipating the unsecured consumer loan book of company coming under pressure in the current environment. The company’s parent company Bajaj Finserv has seen a 12.3 per cent cut, while Housing Development Finance Corporate has seen a cut of 11 per cent.
After being in limbo for the last few months, NBFCs are likely to get some relief as State Bank of India could extend the moratorium to this segment on a case-to-case basis.
For public sector units (PSUs), the price revision has been relatively moderate. Five of the 7 PSUs in Nifty have seen a 6-15 per cent cut in targets. Oil & Natural Gas Corporation (ONGC) has seen the largest cut at 38 per cent, followed by Indian Oil Corporation at 21.24 per cent. However, analysts say more PSUs could face steeper cuts in the coming days.
“PSU utilities could see further downward revisions as they have an issue with the receivable part of their books and are operating at lower capacities due to outbreak of Covid-19," Chokkalingam said.
Meanwhile, the pharma names in Nifty have seen some upward revision in their target prices. For Dr Reddy’s Laboratories, brokerages have moved the target price from Rs 2,892 to Rs 3,657, a jump of 26 per cent. For Sun Pharma, the target price has seen a marginal uptick of 2 per cent, while prices have been raised by 7 per cent for Cipla.
“While most sectors are likely to see significant negative impact due to Covid-19, the pharma sector will see less of an impact,” said Sailesh Raj Bhan, deputy CIO, Nippon India MF.
Within consumer staples, Hindustan Unilever has seen an upward revision of 7.6 per cent, and Nestle has seen targets raised by 10 per cent. “Besides pharma, consumption basket remains better-placed, and offers better earnings visibility,” said a fund manager.
“We have seen pre-buying across consumer staples in anticipation of lockdown. However, we don’t see June quarter numbers meeting expectations build-up of markets,” Jasani added.
The IT sector is bracing for a heavy impact from the coronavirus outbreak, with analysts fearing sharp cuts in IT spending in US and Europe, as these geographies have been severely hit by the pandemic.
For TCS and Infosys, targets are down between 11-12 per cent. For Wipro and Tech Mahindra, targets are down 20 per cent.
Analysts say US and Europe together account for more than two-thirds of business for Indian IT companies.
Inputs by Sundar Sethuraman