Benchmark indices have gained little over 2 percent in the past one month, especially since the start of September quarter results. But broader markets outperformed frontliners with the BSE Midcap and Smallcap indices gaining around 8 percent each.
Attractive valuations, stable earnings from several companies drove the broader indices higher, experts said. But according to them, overall earnings season has been mixed so far, and they expect a downgrade in Nifty EPS estimates for FY19 due to pressure on companies' margins."The overall earnings growth trajectory is still subdued and needs at least another quarter of strong performance to validate an earnings revival," Sahil Kapoor, Chief Market Strategist, Edelweiss Investment Research told Moneycontrol.
Vineeta Sharma of Narnolia Financial Advisors said industrial sector companies reported good results while insurance companies came out with better-than-expected growth and management commentary suggests growth will remain intact going forward.
Automobiles and metals reported an in-line set of numbers while FMCG reported volume growth slightly lower than the last quarter but still around low double-digit figures on account of better rural growth, she added.
She feels cement reported worse-than-expected margins on account of elevated power, fuel and freight costs amidst lower capacity utilisation on account of weak volume growth.
Going forward, she believes price growth in Nifty will mostly come through earnings growth while valuation multiple will see continued contraction.
Nifty EPS growth for FY19 after the results are expected to come down from 15 percent to 12 percent, according to Vineeta Sharma.
Here is the list of 15 stocks which saw upgrade in rating from brokerages after July-September quarter earnings. These stocks could return 10-50 percent over next one year:
Kotak Mahindra Bank
CLSA has upgraded the stock to 'buy' from 'outperform' on reasonable valuations, but has slashed price target to Rs 1,420 from Rs 1,480 implying a potential upside of 25 percent from the last regular trade.
The private sector lender reported healthy growth in core profits, but investment provisions dragged. Its strong CASA and capitalisation will aid market share gains.
CLSA expects pick-up in earnings growth.
While upgrading the stock to 'outperform' from 'neutral' and raising target price to Rs 376 from Rs 331 per share, Macquarie said reversal in copra cycle & price increase would help boost margins in second half of FY19.
The management is confident of achieving volume guidance.
IRB Infrastructure Developers
Credit Suisse has upgraded IRB Infrastructure to 'neutral' from 'underperform' on sharp fall in share price, but slashed target price to Rs 165 from Rs 220 amid concerns lack of value accretion in several large assets.
Hence, it cut earnings estimates by 6-12 percent for FY19/20.
Morgan Stanley had upgraded the liquor maker to 'overweight' and also increased target price to Rs 700 from Rs 650 per share.
"We see signs of volume growth acceleration. Cost rationalisation and improved efficiency can drive earnings," it said.
Emkay, which has upgraded the stock to 'accumulate' and raised target price to Rs 402 from Rs 352, said headline numbers were better-than-estimates on higher production volumes.
Overseas facilities are stabilised will add value to EBITDA (earnings before interest, tax, depreciation and amortisation), going ahead, it feels.
Deutsche Bank has upgraded country's second largest telecom operator to 'buy' from 'hold' with a target price at Rs 425 as stabilisation in India Mobile and Africa continued to improve in Q2FY19.
The lower-than-forecast result is on account of India business, it said. "We don't believe there has been any material change in competitive landscape."
It believes balance sheet offers significant headroom to fund $4 billion per year capex programme and forecasts 3-year CAGR in revenue & EBITDA at 8/13 percent.
Macquarie has upgraded the Adani Group company to 'outperform' from 'neutral' but slashed target to Rs 358 from Rs 383.
The research house raised its earnings estimates by 0-5 percent over FY19-21 and expects growth to normalise in second half of FY19 as the base catches up.
JPMorgan has upgraded its rating on the midcap IT company to 'overweight' with a target price at Rs 1,050 as top client continued to drive company's performance in Q2FY19 and the rest of the business, too, has been growing comfortably at double-digit YoY.
According to the research house, the stock could get to this target of Rs 1,050 with just one strong quarter.
Current price appeared attractive entry for 26 percent potential upside over 9-12 months as it assumed comfortable double-digit percentage growth into FY20.
Mindtree's executable total contract value over 12 months stood at $457 million in first half of FY19, up 26 percent YoY.
However, the risks to its upgrade emanate from being unable to drive growth ex-top client, it said.
Equirus has upgraded the stock to 'long' from 'add' and raised target price to Rs 2,340 from Rs 2,320 as it expects total income at 17.4 percent CAGR over FY18-FY21 versus 20.8 percent in FY15-FY18.
The research house has largely maintained its FY19/FY20 estimates, with a 10 bps decline in FY19 NIM. It expects FY19/FY20 advances growth at 23/20 percent.
Credit Suisse has upgraded the software company to 'outperform' from 'neutral' and increased target price to Rs 1,375 from Rs 1,250 as it lifted its earnings estimates by 11-12 percent.
While valuations are not low, upgrade is on better visibility of growth, it said, adding the outstanding order book to be executed in 12 months is 13 percent larger YoY.
The company looked confident of continued growth acceleration, it believes.
Maybank has upgraded the IT company to 'buy' from 'hold' and has also raised target price to Rs 470 from Rs 440 as it believes fundamentals are improving, backed by rupee depreciation against US dollar.
"We are anticipating catalysts from potential large contract wins and forecast revenue growth of 4.6 percent QoQ in constant currency & 3.8 percent in dollar terms," the research house said, adding EBIT margin is expected to improve 120 bps to 15.2 percent.
CLSA has upgraded the FMCG scrip to 'buy' from 'sell' and increased price target to Rs 1,265 from Rs 1,120 as valuations are at a discount to most peers. It expects current valuations to sustain as outlook improves.
Colgate has increased its growth focus and its promotion activity is at its best, the research house said, adding the worst seems to be over for the company as wholesale is stabilising and competition peeked.
Edelweiss has upgraded the state-owned metal company to 'buy' from 'reduce' and also hiked price target to Rs 87 from Rs 70 as it believes that SAIL is a turnaround story with FY18–20 EBITDA CAGR of 35 percent.
Completion of modernisation & expansion plan aided its profitability in the quarter ended September 2019. Cost concerns are receding and are under control, the research house feels.
Kotak Securities said the company's largest revenue segment (i.e. three-wheeler engines business) has been going through a prolonged phase of slowdown due to - 1) shift from diesel to CNG engines, and 2) emergence of electric vehicles. GCL is responding to this challenge by positioning itself as a fuel-agnostic engine maker including electric mobility, it feels.
GCL is currently trading at 13.5x and 12.4x FY19 and FY20 earnings, respectively, which is attractive compared to peers in the capital goods and manufacturing sector, it said.
However, considering the moderate growth profile of the business, we are giving it a lower target PE, Kotak said. "We now value the stock at 15x FY20E (earlier 16x FY20E), thus arriving at a price target of Rs 146 (Rs 165 earlier). However, due to good upside, we upgrade the stock to buy."
Anand Rathi Share and Stock Brokers said given the recent fall in the stock price, it has upgraded the software company to a 'buy' with new target price of Rs 370 (earlier Rs 380).
Sonata Software's Q2 revenue was $85.9 million (down 16.4 percent QoQ, up 27.5 percent YoY). Its IT services business revenue came at $39.4 million, up 3.3 percent QoQ (constant currency: up 4 perent), 8.1 percent YoY.
The IT products business had $46.6 million revenue, down 28 percent QoQ, up 50.3 percent YoY. The EBITDA margin was 12.5 percent, up 182 bps QoQ, down 34 bps YoY.
Anand Rathi largely retained its FY19e/FY20e earnings and introduced FY21e. Consequently, it moved target multiple to 13.5x FY21e (earlier 15x FY20e).
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