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Metal stocks shine among preferred Nifty stocks, Sun Pharma, Infosys out of favour

LiveMint logoLiveMint 03-10-2017 Ami Shah

Mumbai: As we enter the last quarter of the calendar year, a look at the most preferred Nifty stocks shows that the earlier favourites, Sun Pharmaceuticals Industries Ltd and Infosys Ltd, have fallen out of investors’ radar as compared to the end of 2016, while Vedanta Ltd and Hindalco Ltd have climbed up the list, with the former being the most preferred stock.

The analysis was based on buy/outperform, hold/neutral and sell/underperform ratings by Bloomberg analysts.

Earlier favourites

Top pharmaceutical company Sun Pharma currently has only 45.5% of the analysts tracking rating it a buy or outperform, as compared to 82.2% of the analysts upbeat on the company at the end of 2016.

In a report on 14 August, Jefferies India Pvt. Ltd said it expected the stock to be weak in the near-term, given valuations at 22 times FY19 price-to-earnings (PE), elevated pricing pressure and flat EPS (earnings per share) over fiscal years 2015-2019.

“Despite the near term challenges, Sun is still best placed in specialty/complex generic and M&A which will be key for pharma sector growth going forward. It has invested heavily in its speciality business,” the Jefferies report said, retaining its “hold” rating on the stock.

Infosys got roiled by the recent promoter-management spat, which saw the exit of Vishal Sikka from the post of the chief executive officer. With Nandan Nilekani stepping in, some of the concerns were assuaged, but it remains to be seen how stability is maintained at the board.

“We maintain that Infosys has strong fundamentals (highest margin levers) and Mr. Nilekani’s appointment eases the uncertainty owing to which we had recently downgraded the stock,” Edelweiss Securities Ltd said in a 28 August note, while maintaining “hold” rating on the stock.

“But, further upside will depend on: appointment of new CEO; clear charting of strategic path; and stability of business/board,” the Edelweiss note added.

New winners

Vedanta and Hindalco are the new entrants to the most preferred list, with the former topping the charts.

“When you withdraw money from some sectors, you need to reallocate them elsewhere. With IT and pharma losing favour, other sectors such as retail focused financials, consumer-focused stocks and metals are in vogue,” said Ajay Bodke, chief executive and chief portfolio manager, portfolio management services, at broking company Prabhudas Lilladher Pvt. Ltd.

“The outlook for metal prices currently is better than what it was at the end of 2016. Valuations were also attractive along with this, and prompted investors to turn towards this space,” added Bodke.

Mining conglomerate Vedanta’s consolidated profit after tax doubled to Rs1,525 crore for the quarter ended June, driven by strong show in zinc and oil and gas businesses.

In a note on 31 August, Kotak Securities Ltd maintained its buy rating on Vedanta, pointing that the miner expects zinc/lead volumes to increase by 50% to 1.6 million tonnes in fiscal year 2020 from new projects.

For Hindalco, firm metal prices and possibility of acquisitions were the key positives.

“China’s commodity demand continues to surprise; while progress on supply reforms should support prices. We look at potential acquisition candidates as per media reports; this could help Novelis further consolidate its position,” HSBC Securities and Capital Markets (India) Pvt. Ltd said in a 7 September note.

The brokerage maintained its “buy” rating on the stock, while raising the target price to Rs285 from Rs241.90.

Meanwhile, five of the top 10 most preferred stocks, based on the highest percentage of analysts’ “buy” or “outperform” rating, are still the same: Aurobindo Pharma Ltd, HDFC Bank Ltd, Power Grid Corp. of India Ltd, NTPC Ltd and IndusInd Bank Ltd.

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