Who told you heavyweight stocks protect wealth in a falling market?
The bulls and bears have been engaged in a tug of war on Dalal Street for most part of this year, testing investors' patience. While most midcap and smallcap stocks have tumbled up to double digits, many of the heavyweights from top industries too have failed to hold up, giving mixed returns.
Data showed that five top stocks of India Inc from 10 major industries have failed to deliver positive returns despite a 4.76 per cent jump in Sensex in the first six months of the year.
But analysts continue to be bullish on most of the largecaps and believe select sectors, including IT and pharma, can be good contra bets in a tepid market.
Blue chip companies that underperformed the benchmark equity index, telecom major Bharti Airtel has plunged 27.86 per cent during January 1 to June 29, followed by real estate company DLF (26.50 per cent) and auto major Maruti Suzuki (down 8.73 per cent).
A cut throat tariff war has kept the pressure on telecom majors this year. Telecom revenues (adjusted gross revenues, AGR) fell 7 per cent quarter-on-quarter (QoQ) during January-March, and are down 25 per cent from the fourth quarter of 2015-16 levels, revealed a report by Jefferies.
It said telecom revenues are now back at the 2012-13 levels. "The fall was precipitated by price cuts at end-January by Jio and incumbents. Industry ARPUs (average revenue per users) fell another 11 per cent QoQ and now stand at Rs 70/sub/month."
Ambar Ambani, Head of Research, IIFL said, “Telcos face an acute dilemma as bundled plans raise volumes but do not provide commensurate revenues due to low ARPU regime. Hence, the near-term pressure on margin may persist as incumbents will need to invest to stay relevant. We retain overweight stance with a bullish bet on Bharti Airtel based on inexpensive 6 times FY20 EV/EBIDTA.”
Even the countrys largest carmaker, Maruti Suzuki, has been underperforming the broader market due to concerns about fuel price inflation, Yen appreciation, and slower-than-expected progress so far in parent Suzukis alliance with Toyota.
Maruti reported a 26 per cent increase in total sales at 1,72,512 units in May against 1,36,962 units in the year-ago month. The firms domestic sales stood at 1,63,200 units, up 24.9 per cent from 1,30,676 units in May last year. Brokerage firm Motilal Oswal has a buy rating on Maruti with a target price of Rs 10,525.
“The stock underperformance was despite stronger-than-estimated volume growth at around 15 per cent in CY18YTD. We expect the earnings upgrade cycle for Maruti Suzuki to continue, driven by higher volumes and margins,” Motilal Oswal said in a report.
Many of the smaller real estate players have gone out of business post the implementation of RERA, which should help big players, especially the cash-rich realtors. But DLF continues to lag.
Yogesh Mehta of Motilal Oswal in a chat with ETNow has earlier said that, “For DLF, there will be a lot more to understand into the balance sheet and lot of many things to be watched out. We do not have a comfort level to evaluate this company on the balance sheet.” DLF recently reported a consolidated net profit of Rs 244 crore for the fourth quarter of 2017-18.
State-owned power transmission behemoth Power Grid Corporation and drug major Sun Pharmaceutical Industries are super powers in their own domains, but their shares are down 6.81 per cent and 2.28 per cent, respectively, in 2018.
Most analysts are bullish on pharma. Independent analyst Anand Tandon told ETNow that profitability still has to come through in this sector. There may be some profit taking in the near term. But if you look at it on a one or two-year timeframe, there is reasonable headroom on the upside for the pharma companies to continue to do well.
“We have just seen the initial news flow coming through in terms of some approvals as well as from the fact that there is just that initial bit of less pricing pressure in the US. But a lot more needs to be done and the road ahead is quite long,” he added.
Global brokerage firm CLSA has a buy call on Sun Pharma with a target price of Rs 600, whereas Elara Capital has a buy rating on Power Grid with a target price of Rs 245.
IT major Tata Consultancy Services and FMCG major Hindustan Unilever have rallied 38 per cent and 21.87 per cent, respectively, this calendar. Private sector lender HDFC Bank, oil and gas major Reliance Industries, and engineering major Larsen & Toubro are up 13.52 per cent, 6.74 per cent and 0.75 per cent, respectively. HDFC Bank and Reliance Industries are among the stocks on Morgan Stanleys focussed list.
Morgan Stanley said, “L&T is a beneficiary as India's capex journey accelerates and the company is the best way to play the acceleration.”
On June 15, Tata Consultancy Services became the first listed company in India to hit a market capitalisation of over Rs 7 lakh crore after the firm's board approved a share buyback for about Rs 16,000 crore, which was larger than expected in terms of price and quantity.
CLSA has a buy rating on TCS with a target price of Rs 1,850, whereas Motilal Oswal is neutral on the IT major with a target price of Rs 1,750. The scrip ended at Rs 1,847.20 on June 29.
Motilal Oswal is also positive on HUL with a target price of Rs 1,840.