ICICI Securities: Bulk PAT downgrades led by metals, Reliance, telecom, healthcare, and IT

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ICICI Securities said the bulk of the earnings upgrade over the past year was driven by domestic cyclical demand-related stocks (financials, consumer discretionary, auto, tobacco, and industrials) and internet stocks. On the flip side, the biggest drivers of credit downgrades were stocks related to the defensive (IT, healthcare, commodities) and commodities (metals, cement) sectors.

“Given the growth-led nature of India’s economic recovery in the ‘gross fixed capital formation’ or capital expenditure cycle (see our note), we expect the earnings upgrade cycle to continue for domestic cyclicals,” she added. ICICI Securities added that the global economic environment remains uncertain and could influence its earnings review related to the global economy.

Maximum stock upgrade

Bank of Baroda, Farun Beverages, Tube Investments, Zomato, ABB, Canara Bank, Trent, Coal India, Bajaj Finserv and M&M majors have all seen significant consensus upgrades; GIC, PB Fintech, Union Bank, Indian Hotels and Bank of India are mid-cap companies; And Apar Industries, Rainbow Child, Ujjivan SFB, Safari Industries and Wonderla Holidays are also small businesses that have been modernized.

On the other hand, Tech Mahindra, Apollo Hospitals, Shri Cement, ICICI Prudential Life, Bharti Airtel, Grasim Ind, Divi’s Lab, Adani Wilmar, Tata Steel and Vedanta (capitals), Gland Pharma, Aditya Birla Fashion, Aarti Industries, Laurus Labs, FSN-E-Commerce (Paytm) and Cement of India (for small caps) saw significant downgrades, she said.

4% decrease in earnings

The aggregate earnings estimate of around 600 shares for FY24 is currently at Rs 12.75 crore as compared to Rs 13.3 crore a year ago. A credit rating downgrade of 4% for gross earnings seems reasonable given shocks such as the massive QT cycle, the Russo-Ukraine war, and the direct debt banking crisis. And the bulk of the dividend upgrades over the past year have been driven by local cycles and internet stocks.

Overall, the market capitalization of those 600 shares has increased by 28 per cent over the past year to Rs 275,000 crore with the bulk of the expansion in market capitalization taking place over the past three months. ICICI Securities said the rapid expansion in market capitalization over the recent past was likely due to a sharp decline in the “equity risk premium” and “risk-free rate” environment.