Home / Markets / Stock Markets /  60% of Nifty cos see a rise in buy ratings post-covid

Mumbai: Analysts have upgraded ratings on around one-third of Nifty stocks as India Inc. continued to report strong earnings for the second consecutive quarter. Overall, corporate earnings in the December quarter were robust, led by a recovery in demand as the economy opened up gradually following the lockdown, while a tight leash on costs helped them have better control on their expenses.

Data showed 29, or about 60% of the 50 stocks, on the Nifty index have seen higher buy ratings by analysts on Bloomberg, in a fiscal after the crash following the pandemic. In nearly one-year period, five stocks have seen 50-100% rise in their buy ratings since 31 March 2020. These are Divi’s Laboratories Ltd, Nestlé India Ltd, Tata Consultancy Services Ltd, Britannia Industries Ltd, and SBI Life Insurance Co Ltd.

Bullish sentiments
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Bullish sentiments

Currently, Divi’s Labs has 18 buy ratings, which increased from nine in March last year. The stock has risen 82%, outperforming Nifty’s rise of 77% in the period from March till date. Nestlé India’s buy ratings increased to 23 in February from 14 in March. Buy ratings of TCS and Britannia Industries are at 28 and 32 from 18 and 21 in March, respectively. SBI Life Insurance Co. Ltd, which made its stock market debut in 2017, currently has 36 buy ratings from 24 in March.

“Earnings upgrade continued in Nifty led by solid beat and upbeat commentaries. The Q3FY21 earnings season revved up from the previous quarter, with big beats and upgrades. About 60% of Nifty companies reported beats on profit estimates, while just 18% posted results below estimates. Nifty sales excluding oil and gas reported healthy 10% growth, the highest since March 2019," said Gautam Duggad of Motilal Oswal Financial Services.

Duggad expects Nifty earnings per share (EPS) to grow 15.7% in FY21. Better-than-expected growth and quicker pace of normalization, cost rationalization measures, lower-than-expected asset quality stress in major banks and recovery in cyclical sectors with strong commodity prices are likely to lead EPS growth in FY21, he said.

The five stocks that have the highest number of buy ratings by analysts are ICICI Bank (49), HDFC Bank (48), Axis Bank (47), State Bank of India (47), and Infosys (43). However, all four stocks other than Infosys have seen a 7%-15% cut in the number of buy ratings from March last year till date.

According to analysts, the recent earnings beat has been a long time coming and consensus is now projecting an earnings upcycle. “Nifty earnings resonate more with the global picture than domestic: not just commodities and exporters, but also financials benefit from easy global liquidity," analysts at Edelweiss Securities said.

There are 20 stocks in Nifty that saw cuts in their buy ratings, while Maruti Suzuki India Ltd had no change. Top stocks where analysts reduced their buy ratings are JSW Steel Ltd, Grasim Industries Ltd, Bajaj Finance Ltd, Asian Paints Ltd, and Reliance Industries Ltd in the range of 25-50% from March last year till date.

The number of stocks in Nifty with zero to nil sell ratings have increased to 15 from six in March last year. Stocks that had the most increase in sell ratings are Asian Paints Ltd, Hindustan Unilever Ltd, Mahindra & Mahindra Ltd, Oil & Natural Gas Corp. Ltd, and Bajaj Finance Ltd.

Analysts are optimistic that profitability will start contributing to GDP as businesses gradually emerge out of the covid crisis.

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