From HDFC To SBI, Jefferies Identifies 10 Stocks With Potential For Earnings Upgrades
Revenue and operating leverage will be key to earnings upgrades as cost pressures rise for companies, Jefferies said, as it listed 10 Indian stocks with good revision momentum.
The Nifty 100 components have seen consensus earnings upgrades of 6%, 4% and 6%, respectively, for FY21, FY22 and FY23, the research firm said in a note. Earnings upgrades have happened for 80% of these stocks, with the highest concentration in cyclical and IT stocks. “Financials, materials and consumer discretionary saw 7-14% upgrades to their FY22 earnings, while staples the only sector with a downgrade of 0.4%.”
Margin-driven upgrades, according to Jefferies, should now start receding as commodity prices rise. Among the sectors that may face downgrades other than FMCG is pharma on rising U.S. pressures and a high base. The research firm also expects oil PSUs and telecom operators to face a cut in earnings estimates.
Jefferies listed HDFC Ltd., State Bank of India, Container Corporation of India Ltd., DLF Ltd., TVS Motor Co., Larsen & Toubro Ltd., Tata Steel Ltd., Voltas Ltd., Havells (India) Ltd., and Infosys Ltd. with potential for further earnings upgrades.
“Some sectors like autos, consumer durables, infrastructure and capital goods, building materials, cement and property—while negatively impacted by higher raw material costs—are seeing improved demand conditions and/or have pricing power currently to counter the cost pressures,” Jefferies said. For the financial sector, which is not impacted by cost pressures, the research firm has a positive outlook on earnings, as credit costs seem factored in.