Top-pick blue chips fail to live up to buy call, underperform Sensex

Mumbai | Updated: Aug 22 2014, 10:04am hrs
BSE SensexAs many as 23 companies from the BSE 200 universe have underperformed the BSE benchmark Sensex in the year to date. (Reuters)
While Indian equities have been kissing new highs every other day, not all blue chips have participated in the rally. Several stocks that are the current favourites of the broking community with a sizeable number of buy calls have failed to live up to their expectations this year.

As many as 23 companies from the BSE 200 universe scrips that are highly recommended by analysts have underperformed the BSE benchmark Sensex in the year to date.

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The percentage of buy calls on these stocks range anywhere between 40% and 90%. The BSE Sensex has given returns of over 24% in the year to date.

FE has analysed a Bloomberg compilation that short-listed those stocks which have more than 10 buy recommendations and less than five sell ratings as of Thursday. The list includes highly recommended seven stocks from the defensive space like pharma and IT, including Infosys, TCS, Dr Reddys Lab and Cipla, with buy calls ranging anywhere between 40% to 80%. While most of these companies continue to be on long-term investors radar given the quality of their earnings growth and dividend payout policies, in the last six months, a general rotation towards the cyclical sectors has impacted their performance. As the Street factors in a turnaround in the economic cycle, investors are growing hopeful that cyclical and interest rate sensitive stocks, which led the rally in equity market this year, would continue to outperform.

In its latest research note in which Nomura assigned a one-year Sensex target of 30,310, the foreign broking house highlighted its overweight stance on sectors like auto and industrials while maintaining an underweight rating on pharma.

FMCG major ITC, which is being recommended by 48 of 52 analysts, has given a return of 9.5%. Although experts largely remain bullish on the stocks, the latest price hike by the cigarette producer following the announcement in Union Budget seems to have impacted investors interest in the stock.

Blue chips like Reliance Industries (12%), Bharti Airtel (13.4%) and Jindal Steel & Power (13%) also feature on the list. In case of Reliance Industries, which currently has 66% of buy ratings, its foray into the telecom business appears to be a concern for investors, given the high costs involved even as the venture is regarded as a value accretive move for the long term.

According to Morgan Stanley, the company could take three years to achieve Ebitda breakeven and five years to reach profitability for the segment. In the interim, RILs ROCE (return on capital employed) will be lowered by its telecom business, believes the foreign brokerage.

Jaiprakash Power Ventures, which was advised by 70% of analysts to buy, has generated a negative return of 13.5%. Similarly Dish TV, which has 79% buy rating, dropped 5.3%. Sun TV Network (-1.8%), on the other hand, has been advised by 27 of 35 total analysts. Hathway Cable (-1.3%) has been recommended by 43% of analysts.

Yoosef KP