HDFC Bank remains among most preferred stocks, as Axis Bank loses favour

Mumbai: When it comes to Sensex stocks, analysts keep their faith in HDFC Bank Ltd.

Data from Bloomberg showed that HDFC Bank, India's most-valued and most profitable bank, was the only stock that featured in the top five most preferred stocks according to analysts’ buy ratings, a year ago and even now. Others in the list were ITC Ltd, Sun Pharmaceutical Industries Ltd, ICICI Bank Ltd and Larsen & Toubro Ltd (L&T).

Around 89.1% or 49 of the 55 analysts who track HDFC Bank rated the stock a buy or outperform, while 4 had a hold or neutral, and two rated them sell or underweight. A year ago, 90.9% of the analysts had rated the stock a buy or overweight.

“It is a no-brainer to pick it (HDFC Bank),” said market analyst Ambareesh Baliga.

“If you look up the last 10 years, this stock has been there for the consistent performance,” added Baliga.

Cigarettes-to-hotels business ITC Ltd. topped the lists of analysts’ favourite Sensex stocks with 92.3% or 36 of 39 analysts rating it a buy or a overweight.

Under the Goods & Services Tax laws, the government is planning to keep the tax incidence on tobacco and cigarettes close to the current taxation, IDFC Securities pointed in a note in 16 March, and added a proposed cess on cigarettes has been capped at Rs4170 per 1000 sticks, against the current maximum rate of Rs4421 per 1000 sticks.

“Though we are still not aware how the formula will work between specific and ad valorem in the final rate structure, we believe the fact that it will be more or less tax neutral alleviates a major overhang on ITC,” IDFC analysts added.

Drug maker Sun Pharmaceutical Industries Ltd. which had been one of the least preferred stocks at the end of December quarter, entered the list of favourites as valuations turned attractive, a promising product pipeline and optimism on clearing of regulatory hurdles.

“The US FDA’s decision to lift the import alert on Sun’s Mohali facility (one of the Ranbaxy plants) comes as a welcome surprise,” Citigroup said in a 16 March note.

“We see limited financial upside in the near term, but believe this is an important first step in extracting value out of Ranbaxy’s US business – which could lead to gains over and above the US$300m guidance on synergies, over time,” Citigroup analysts added.

Private lender ICICI Bank Ltd ranked fourth in the list of favourites, on improving performance metrics.

“…with successive decline in the size of watchlist, controlled slippages from core portfolio and bottoming out of NPL ratios over FY18E, we expect ICICI Bank’s return profile to improve steadily,” Antique Stock Broking said in a note on 7 March, when it upgraded the stock to buy from a hold rating.

Top engineering and construction firm Larsen & Toubro Ltd ranked fifth in the order of preference, on improving visibility.

In a note on 10 March, Nomura said it has seen visible efforts by the company over the past 15 months to focus on profitability along with growth against its earlier skewed focus on order inflows, adding the stock remains its top pick in India Industrials space.

Axis Bank, on the other hand, shifted from being among the most liked stocks at the end of last fiscal year to being among the least preferred ones currently.

“Axis Bank tumbled because of nasty surprises in the their results, along with inconsistency which bothered investors,” said Bailga.

Asian Paints Ltd, Wipro Ltd and Dr Reddy’s Laboratories Ltd continue to be the least preferred stocks in the pack a year ago as well as now, as sectoral and company-specific reasons continued to weigh.

Software services firm Wipro was the least preferred stock in the Sensex pack, with only 20.8% or only 11 of 52 analysts tracking the stock rating having a positive rating.

“In the case of Wipro, there is no growth. The growth prospects are on lower side,” said R. Sreesankar, co-head of institutional equities at Prabhudas Lilladher Pvt. Ltd.

Sreesankar also explained that in the case of Asian Paints, the valuations are expensive, and other paint companies’ volume growth has been relatively faster.

“As far as Dr. Reddy’s is concerned, the pharma sector at large is facing challenges due to pricing and regulatory issues,” added Sreesankar.

Top software services firm Tata Consultancy Services Ltd. was the third-least favourite stock among Sensex constituents, as visa woes and outsourcing debates continue to cloud the outlook for the IT companies. In a note on 2 March, Nirmal Bang Securities retained its sell rating on the stock, saying that in the near term, it believes the changes to H1-B visa rules are likely to be realised and they will have a material negative impact on the margins of the companies under its coverage over fiscal years 2017-19.