Blue chips see cuts in target prices; half of Nifty sees cuts of over 15%

Topics Nifty | blue-chip stocks | Lockdown

For non-bank financial companies (NBFCs) in Nifty, price cuts are in the range of 10-25 per cent.
Blue-chip stocks have seen sharp cuts in their target prices, with half the Nifty universe seeing a cut of over 15 per cent in targets. Overall, the index constituents have seen a 2-60 per cent reduction in analysts’ consensus targets, with broking houses factoring in the risks to earnings amid the coronavirus-induced lockdown.

According to the data from Bloomberg, banks have seen among the sharpest cuts in target prices — between 16 and 60 per cent. Among the stocks, IndusInd Bank has seen target price revised from Rs 1,624 in the beginning of the year, to Rs 624, reflecting a 61 per cent cut.  Axis Bank has seen a 34 per cent cut in its 12-month forward target price, followed by State Bank of India, which has seen a 20 per cent cut.

“The banking sector is seen as a proxy to economic activity. However, the current environment has raised concerns on credit growth and asset quality of banks, possibly coming under pressure,” said Sonam Udasi, senior fund manager, Tata Mutual Fund (MF).

“Some sectors will come back to normal after a few quarters, while some such as aviation, realty, and banking will take time, maybe, beyond FY21,” said G Chokkalingam, founder of Equinomics Research and Advisory.
Apart from banks, the auto sector has seen a sharp revision in targets. 

For Tata Motors, the 12-month target price has been adjusted 42.5 per cent lower since the beginning of the year. For Maruti Suzuki, the target is slashed by 21 per cent. Other prominent auto names have seen 12-26 per cent cut in targets. “Auto sector was already facing certain challenges as cost-push caused by BS-VI rollout and insurance cover for two-wheelers was impacting demand. Covid-19 outbreak has led to both demand and supply chain disruptions for the sector,” said Deepak Jasani, head of retail research at HDFC Securities.  

For non-banking financial companies (NBFCs) in the Nifty, price cuts are in the range of 10 and 25 per cent. Bajaj Finance has seen the biggest cut, with analysts anticipating the unsecured consumer loan book of the firm coming under pressure in the current environment. The firm’s parent company Bajaj Finserv has seen a 12.3 per cent cut, while Housing Development Finance Corporate has seen 11 per cent cut.  After being in a limbo for the last few months, NBFCs are likely to get some relief as State Bank of India could extend moratorium to this segment on a case-to-case basis.


For public sector units (PSUs), the price revision has been relatively moderate. Five of the seven PSUs in the Nifty have seen 6-15 per cent cut in targets. Oil & Natural Gas Corporation (ONGC) has seen the largest cut at 38 per cent, followed by Indian Oil Corporation at 21.24 per cent. However, analysts say more PSUs can face steeper cuts in the coming days.

“PSU utilities could see further downward revisions as they have an issue with the receivable part of their books and are operating at lower capacities due to the Covid-19 outbreak,” Chokkalingam said.

Meanwhile, the pharma names in the Nifty have seen some upward revision to their target prices. For Dr. Reddy’s Laboratories, brokerages have moved the target price from Rs 2,892 to Rs 3,657, a jump of 26 per cent. 
For Sun Pharma, the target price has seen marginal upmove of two per cent, while prices have been raised by seven per cent for Cipla. “While most sectors are likely to see significant negative impact due to Covid-19, the pharma sector will see less of an impact,” said Sailesh Raj Bhan, deputy CIO, Nippon India MF.

Within consumer staples, Hind-ustan Unilever has seen upward revision of 7.6 per cent, and Nestlé has seen targets raised by 10 per cent. “Besides pharma, consumption basket remains better placed, and offers better earnings visibility,” said a fund manager.

“We have seen pre-buying across consumer staples in anticipation of the lockdown. However, we don’t see June quarter numbers meeting the expectations build-up of markets,” Jasani added. 

The information technology (IT) sector is bracing for a heavy impact from the outbreak, with analysts fearing sharp cuts in IT spending in the US and Europe, as these geographies have been severely hit by the coronavirus pandemic.  For TCS and Infosys, targets are down, between 11 and 12 per cent. 

For Wipro and Tech Mahindra, targets are down 20 per cent.  Analysts say US and Europe together account for more than two-thirds of business for Indian IT firms.
Nifty, Sensex resume slide with spurt in virus cases across country

Equity indices ended lower after trade on Thursday as a risk-off mood took hold amid a spike in coronavirus cases in the country. Strong selling in banking, financials and consumption stocks weighed on the bourses, despite positive global cues, traders said. The Sensex dropped 242.37 points, or 0.76 per cent, to close at 31,443.38. The Nifty slipped 71.85 points, or 0.78 per cent, to 9,199.05. ONGC was the top loser in the Sensex pack, slumping 4.54 per cent. PTI


Inputs by Sundar Sethuraman

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