Brokerage Views: Citis India Equity Strategy, Morgan Stanleys IT Picks And More

Brokerages from Citi Research to Morgan Stanley and Goldman Sachs have released several notes that capture the outlook for various sectors, from foreign investment scenario and preferred picks in consumption to oil and gas and information technology. Goldman Sachs is bearish on Vodafone Idea Ltd. and Indus Towers Ltd.

NDTV Profit tracks what brokerages are putting out on stocks and sectors. Here are all the top calls from analysts you need to know about on Friday.

Citi On India Equity Strategy

FII inflows effect on commencement of US rate cut cycle:

Net negative FII inflows in most cases, especially one to three months after US rate cut cycle. But positive over 12-month period in most cases aided by USD weakness.
Global risk-off scenarios key driver of short-term outflows.
Remains positive over 12 months in most cases.
Healthcare and staples to do well over 12 months following rate cute cycle.
Global peers believe India remains relatively better placed compared to the overall emerging markets.

Changes To Preferred Picks:

Remove Industrials and Utilities from sector preferences.
Add Hindustan Unilever Ltd to preferred list seeing improvement on rural side.
Add Bharti Hexacom Ltd. to mid-cap list after initiating coverage.
Key overweight sectors: Banks and Insurance, Telecom, Healthcare.
Key underweight sectors: Consumer Discretionary, IT Services, Metals.

Also Read: Ola Electric Stock Declines As Anchor Lock-In Ends For 18 Crore Shares

Motilal Oswal On Coal India

The brokerage maintained 'buy' rating, with a price target of Rs 600 apiece, implying a 21% potential upside to the previous close.
The state-owned miner remains the top pick in metals and mining sector, as the company's volume growth outlook remains robust.
August production numbers down on erratic monsoon.
Power demand to move in tandem with GDP growth, which will be positive for Coal India.
It expects the company to post a compound annual growth rate of 8% in production volume over the next two years.
The company is increasing coal-washer capacity to strengthen its domestic coking coal position
The brokerage maintains its revenue and operating profit (Ebitda) estimates for the current and the next fiscal.

Also Read: Coal India - Volume Growth Outlook Remains Robust: Motilal Oswal

Morgan Stanley On IT

Preference:

The investment bank prefers IT names over Engineering and R&D.
It upgraded LTIMindtree Ltd. to 'overweight' and downgrade HCLTech Ltd. to 'equalweight'.
Its preferred picks in the IT space is LTIM, Infosys Ltd. and Coforge Ltd.

Pecking order:

Infosys over Tata Consultancy Services Ltd. (both 'overweight')
LTIM over HCLT and Tech Mahindra Ltd.
'Underweight' on Wipro Ltd.
First quarter marked the start of upgrade cycle, which will continue for at least next one to two quarters.
The uptick in BFSI spending will aid high growth in the next fiscal
For LTIM, improving deal conversion ratio, stabilising margins and wallet share gains will be the positives.
For HCLTech, limited deal wins, share outperformance and limited signals of uptick in revenue is a concern .

On valuations and positive bias:

The bank said valuations have become expensive.
The top four's price-to-earnings premium to BSE Sensex is 22% compared to last five year average of 10%.
TCS premium to Accenture is 6% versus last five year average of 1%.
Macro data points such as US GDP, S&P 500 earnings are supportive for the IT pack.
There are signals of sector bottoming out and a pick up in growth trend based on mixed signals from global IT companies and hyperscalers.

Also Read: Indian IT To Gain On Favourable Macros, Says Morgan Stanley

Morgan Stanley On Oil & Gas

Oil and Natural Gas Corp. remains top pick, followed by Hindustan Petroleum Corp. and GAIL (India) Ltd.
It prefers HPCL and Bharat Petroleum Corp. over Indian Oil Corp.
ONGC: Dividend growth, recovering cash flows and better production outlook to drive rerating.
GAIL India: Higher transmission volumes and tariffs and new pipelines to drive return-on-capital.
Gujarat Gas Ltd.: Simpler group structure will offer 70% potential upside
Reliance Industries Ltd.: Expect 11% compounded annual growth in earnings-per-share over three years with multiple triggers.
It expects the next leg of rerating for Deepak Nitrite Ltd.
Well-supplied markets, strong domestic demand and project monetisation to benefit India's energy value chain.

Also Read: How A Drop In Brent Crude Oil Prices Impacts Indian Oil Companies

Goldman Sachs On Vodafone Idea

The bank maintained 'sell' rating on the stock, with a target price of Rs 2.5 apiece, a potential downside of 83% over the last closing.
The recent capital raise is positive, however, it is unlikely to stop market share erosion.
Average revenue per user would have to rise to Rs 200-270 to maintain a neutral cashflow.
It forecast another 300 basis points loss in market share in another 3-4 years.
The telco has large AGR and spectrum dues starting next fiscal.
The bank expects free cashflow to be negative at least till fiscal 2031.
The company trades at 24 times the fiscal 2026 enterprise value/Ebitda, a sharp premium to Bharti Airtel which is at 12 times.

Goldman Sachs On Indus Towers

The stock downgraded to 'sell' with a target price of Rs 350 from the earlier Rs 434, implying a downside of 19.4%.
The fundamentals have significantly improved, however rerating is overdone.
There is limited visibility on medium and long-term growth outlook.
The current share price implies 8-10% Ebitda growth till fiscal 2030, which is unlikely.
The multiples are at significant premium to Bharti Airtel’s or Jio’s.
Vodafone’s continued share erosion and reduction in Airtel’s tendency roll outs are negative catalysts.

Also Read: Stock Market Today: All You Need To Know Before Going Into Trade On Sept. 6

Goldman Sachs On State Bank of India

Downgraded the stock to 'sell' from 'neutral', with price target of Rs 742, implying a 9% potential downside.
The risk reward profile is turning unfavourable.
There are headwinds to return-on-assets sustainability and it expects sub-1% RoA by next fiscal.
The lender is facing lower loan growth given the widening gap between deposits and loans.
It expects increase in credit costs from MSME, agricultural and unsecured loans.
The earnings-per-share reduced by 3-9% and target multiple to 1 times from 1.2 times earlier.

Also Read: SBI Shares Slide As Goldman Sachs Downgrades To 'Sell' Highlighting Headwinds

Nomura On Tata Motors

The brokerage maintains 'hold' rating with a target price of Rs 1,100, an upside of 1.8% to the previous close, citing potential shift up in JLR’s valuation versus Porsche.
Jaguar Land Rover's underperformance between 2017 and 22 got its valuation to 1.5-2 times EV/Ebitda.
The company is currently trading at 3-4 times EV/EBITDA but still 50% lower than Porsche.
Every 1 time expansion in JLRs EV/Ebitda multiple is 10-15% accretive to Tata Motors stock price.
Resale value trends, a proxy for brand-perception, remain inferior compared to Porsche.
JLR is catching up on financial metrics to Porsche.
Porsche has lead on EVs but JLR scheduled to launch soon.
Currently value JLR at 3 times EV/Ebitda, a 30% premium to Mercedes and BMW.

Emkay On Ashok Leyland

The brokerage maintains 'buy' rating on the stock with target price of Rs 300, representing a potential upside of 25%.
Margin expansion to mid-teens on track and truck volumes could potentially improve from the second half of the current fiscal.
Mid-to-long term outlook driven by economic growth and triggering of replacement-led demand as fleet-age remains at record levels.
The company is gaining share in buses/LCVs.
Spares, defence, and power solutions businesses are also faring well.
Improving mix and cost controls gives confidence on mid-teen margin guidance.
One of the least expensive original equipment manufactures, with 13% EPS growth.

Also Read: Ola Electric Stock Declines As Anchor Lock-In Ends For 18 Crore Shares