Contrarian Calls: Optimism reduces for Q2’s best performing Nifty stock

Analysts toned down their optimism on a clutch of stocks part of the Nifty 50 as a swashbuckling rally amid persistent global macro uncertainty made theirm cautious over valuations.

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Analysts on Dalal Street were less optimistic on the prospects of Bajaj Finserv even as the company emerged as the best performing stock on the Nifty 50 in the quarter ended September 30.

Bajaj Finserv’s shares rallied more than 53 percent in the second quarter of the current financial year but that was not enough for analysts who reduced the level of their optimism on the counter, according to data available on Bloomberg.

Nearly 70 percent of the 10 brokerage firms that tracked the company had a ‘buy’ rating on the stock at the end of the September quarter as compared to 80 percent of them at the beginning of the quarter, as per Bloomberg data.

Bajaj Finserv had a ‘buy’ rating from seven out of the 10 analysts that have coverage on the stock. The reduction in optimism is likely a function of the sharp rally seen on the counter aided by optimism for its subsidiary Bajaj Finance and its own general insurance operation.

Bajaj Finserv benefits from the sharp uptick in loan growth being witnessed at its subsidiary Bajaj Finance due to the ongoing festive period. The company is also benefitting from the perception that its general insurance business may do well going ahead because of a revival in India’s automobile sector as auto insurance demand picks up.

However, the rally may have been too much, too soon for the stock as its price has already crossed the consensus price target of Rs 1,618 for the next 12 months, indicating limited upside.

Another stock that saw a strong performance during the September quarter but faced some skepticism from analysts on Dalal Street is Hindustan Unilever.

HUL’s shares jumped 21 percent in the September quarter on defensive buying from investors amid high market volatility as well as on hopes of improvement in margins going ahead.

A sharp downtick in global commodity prices including crude palm oil led to optimism that HUL could report a sequential improvement in margins in the September quarter while a normal monsoon also raised hopes of an increase in volume growth in rural markets.

That said, the rich valuations of the company have made some analysts pare down their optimism, as only 74 percent of the analysts with a coverage on the stock now had a ‘buy’ call as against 79 percent at the beginning of the quarter.

While the ‘sell’ ratings on the stock have remained constant at two, the number of ‘hold’ ratings jumped to nine from six earlier, Bloomberg data showed.

Other prominent winners of the September quarter that saw mild downgrades to their ratings from analysts included Adani Ports, Coal India, NTPC and Mahindra & Mahindra.

Reliance Industries, which saw an 8 percent cut in its stock price and was the second worst performer on the Nifty 50 in the September quarter, saw analysts become more optimistic on its prospects.

The imposition of additional excise duty on petroleum and diesel exports of the company led to a weak quarterly performance from the counter on concerns over the earnings of the energy segment.

That, however, was no deterrent for some analysts as they upgraded the stock to a ‘buy’ rating from a ‘hold’ rating earlier. As many as 82 percent of the analysts covering RIL now hold a ‘buy’ rating on the scrip as compared to just 74 percent at the beginning of the September quarter.

Similarly, HDFC Life Insurance, which has fallen little over 3 percent in Q2, has seen an upswing in optimism from analysts. As many as 94 percent of the analysts have a ‘buy’ rating on the counter, up from 89 percent earlier.

Optimism for earnings of the insurance sector going ahead led by reducing claims and improving annual premium equivalent growth led analysts to upgrade their outlook even as the market failed to appreciate it.

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