NEW DELHI: The hottest stock on Dalal Street’s radar today may not be the best ‘buy’ opportunity for you. It’s better to stay with stocks where the consensus has turned neutral to positive.
This has held true for the BSE100 stocks for the past decade, and it held true for the March quarter too. But why?
Investment thesis of the most popular stocks is quite popular, which makes them more likely to be discussed. On the other hand, neutral-to-moderately popular stocks are usually neglected by the Street when their drivers are still evolving, brokerage Motilal Oswal Securities said in a note.
“As the drivers evolve, there is a sudden surge in investor interest in such stocks, leading to a spike in returns,” it said.
A consensus ‘sell’ call on a stock, on the other hand, does lead to underperformance, the brokerage said.
What’s the proof?
The brokerage divided consensus ratings in five groups, with stocks having highest consensus buys in group Q1 and the least buy ratings as Q5.
The group Q1 – which included stocks with most buy ratings – fell 8 per cent during the March quarter. This was against a 2.5 per cent drop in the group Q3 stocks, which had third highest buy ratings. The BSE Sensex and BSE100 indices declined 3.6 per cent and 4.4 per cent, respectively, during the quarter.
Group Q5 stocks, with least buy calls, were the worst performers among all groups.
Here’s a look at 10 BSE100 stocks with most consensus buy calls:
HDFC Bank has been a favourite stock of institutional investors. The private lender has consistently grown its market share in loans and deposits across credit cycles, and has emerged as the best-managed bank in India with robust profitability/growth metrics.
Increasing granularity of the balance sheet, focus on fee income growth, an improvement in operating leverage aided by digital initiatives, and controlled credit costs backed by strong underwriting have enabled the bank to outperform most peers, Motilal Oswal Securities noted.
“M&M is the best bet on rural recovery, as a vibrant rural market can improve visibility of volumes in the tractor and UV businesses. In addition, M&M’s tractor business is launching its third brand, Trakstar, focusing on undercutting lower-priced competitors by 5-10 per cent, with the intent of gaining 3-5 per cent market share,” the brokerage said.
Here’s a list of top consensus ‘sell’ calls:
The brokerage also divided consensus sell calls into five different groups, with stocks having highest consensus sells in group Q1 and lowest in group 5. In March quarter, the group with highest ‘sell’ ratings declined 16 per cent, while the group with lowest consensus ‘sell’ calls declined 7.8 per cent.
“It’s important to note that investing in stocks with the lowest consensus sell rating (Q5) would deliver the best returns over a longer period of time, though there may be periods of underperformance on quarterly basis,” Motilal Oswal Securities said.
Source: Economic Times