Analysts Cut Buy Ratings For Nearly Half Of Indian Stocks Since June

Analysts cut buy ratings for nearly half of the Indian stocks since June as corporate earnings missed estimates, geopolitical tensions aggravated, and economic growth slowed.

Of the 252 stocks tracked by at least 10 analysts, the number of bullish calls were downgraded for 116 companies since the end of June, according to Bloomberg data. Eighty-two stocks saw an increase in the number of buy calls. A cut in buy ratings can either mean a ‘hold’ or a ‘sell’ recommendation.

Selection Criteria

• Stocks tracked by at least 10 analysts.
• Filtered 252 stocks out of 5,163 listed companies.

Information technology companies have seen the highest reduction in the number of ‘buy’ calls, followed by stocks of consumer goods makers and basic materials such as Shree Cement Ltd. and Tata Steel Ltd., among others. On the other hand, analysts turned bullish on oil and gas stocks and consumer services providers such as InterGlobe Aviation Ltd., SpiceJet Ltd. and Voltas Ltd., among others.

While Titan Company Ltd. saw the biggest cut in the number of ‘buy’ ratings, bullish calls for Gail (India) Ltd. increased the most.

This comes at a time India’s equity benchmarks fell for the third straight month in August and entered September on a tepid note even after the government announced several measures to revive the economy and rolled back a tax surcharge on foreign investors. Still, overseas investors continued their relentless selling into September. Foreign investors have sold equities worth Rs 34,572 crore so far in September since June-end.

Here are the five companies that saw the biggest cuts in the number of buy ratings:

• Titan: Most brokerages turned cautious on the Tata group company as high gold prices led to uncertainty over demand amid a consumption slowdown in the economy. Its high valuation compared to its historical average, too, triggered the cuts.
• Tata Consultancy Services: Its lower-than-expected growth in top line in the quarter ended June and concerns over the company’s ability to meet its full year double-digit revenue guidance due to poor performance of the traditional banking, financial services and insurance segment prompted the analysts to cut buy ratings.
• Cyient: Its poor performance in the quarter ended June and longer-than-expected recovery in key business verticals worried analysts.
• DCB Bank: Its poor core performance, moderation in loan growth and deteriorating asset quality are key headwinds for the lender, according to analysts.
• Nestle India: Pressure on margin due to higher input cost, fall in exports and loss of market share in categories like noodles are the key concerns.

Here are the five companies that saw the biggest increase in the number of buy ratings:

• GAIL: Analysts turned bullish on the gas distributor as it’s able to make profits from the U.S. LNG contracts despite higher prices and outlook on core gas transmission business remains steady. Its cheaper valuation compared with peers, too, turned analysts upbeat.
• UltraTech Cement: Analysts said the cement maker is best placed to gain when the demand revives in the second half of the financial year, driven by the government’s push for affordable housing and infrastructure. Focus on balance sheet deleveraging, too, helped UltraTech Cement to be the top choice for analysts.
• Container Corporation: The unit of Indian Railways—which is the monopoly operator of container trains in India with 70 percent market share—will significantly gain from the government’s dedicated freight corridor initiative, according to Morgan Stanley. The research firm initiated coverage on the stock with an overweight rating.
• Reliance Industries: Analysts issued new buy ratings after the billionaire Mukesh Ambani-owned company announced its plans to turn debt-free in less than two years and list its consumer retail arms—Reliance Jio Infocomm Ltd. and Reliance Retail Ltd.
• Coal India: Better-than-expected earnings in the financial year ended March, and in the quarter ended June, coupled with higher e-auction prices and stable costs, prompted the analysts to issue new buy calls on the world’s largest coal miner.

(The reasons for changing ratings have been compiled from the research reports of JPMorgan, Citi, CLSA, Emkay Global Financial Services and Edelweiss, among others.)