The three most-valued stocks on Dalal Street namely Reliance Industries Ltd (RIL), Tata Consultancy Services Ltd (TCS) and HDFC Bank Ltd have delivered negative returns in the last two years. Infosys, the six most-valued stock in India is, in fact, down 20 per cent in the last two years, making investors wonder whether is it time to consider buying into some of the battered largecap names.
Kotak Institutional Equities said largecap stocks offer better reward-risk balance given more reasonable valuations versus lofty valuations of most mid- and small-cap. stocks. "Nifty valuation appears to be more reasonable today at 17.5 times FY2025 EPS in the context of moderate earnings growth and muted performance over the past two years. We find decent value in a few largecap stocks and the BFSI sector only in light of rich valuations of most stocks in the consumption, investment and outsourcing sectors," it said.
In the case of RIL, the stock is down about 5 per cent for the two-year period. An average target price for the stock at Rs 2,790, suggests 23 per cent potential upside on the stock. For TCS, the average target of Rs 3,691 suggests a 10 per cent potential upside. HDFC Bank's average target price of Rs 1,951 hints at 32 per cent upside potential.
In the case of HDFC Bank, the recent targets on the counter suggest analysts are neutral-to-positive on the stock's prospects. "The aggressive branch expansion and merger-related costs would keep cost on the higher side. Margin trajectory is important for stock's rerating and remain key monitorable," Julius Baer said while suggesting a target of Rs 1,925 on the stock.
Nomura India in a recent note said it appreciates the strength of the franchise, its relatively lower medium-term return on asset (RoA) profile against peers make its outperformance difficult.
"While HDFC Bank will overcome some NIM pressure in due course, this will be gradual and limited to 15 bps over time, in our view. We tweak FY24F EPS up by 3 per cent. We cut our target by 3 per cent to Rs 1,750 (from Rs 1,800), as we now value HDFC Bank at 2.3 times Sep-25 BVPS," Nomura said.
In the case of RIL, analysts are expecting strong Q2 earnings later today. They see 25-27 per cent jump in year-on-year (YoY) quarterly profit on a muted growth in sales.
For the upstream business, Nomura estimates a sharp rise in upstream Ebitda underpinned by the rise in volumes following the commencement of the MJ field. It sees Q2 realisation to be steady q-q $10.8 per mmBtu.
"For the consumer-facing business, we estimate Jio’s Ebitda to rise 3 per cent QoQ, underpinned by strong EoP subscriber additions of 8 million and a modest 0.6 per cent increase in ARPU to Rs 182/month. We estimate RIL’s retail segment Ebitda to increase 4 per cent QoQ, benefiting from a robust pace of store additions and rising footfalls," it said while suggesting a target of Rs 2,925 on the stock.
Sharekhan said finds RIL a compelling long-term investment stock bet, as strong prospects across businesses and potential value unlocking from retail, digital services and financial services portfolio is seen creating long-term value for shareholders. JM Financial also, in its earnings preview, maintained 'Buy' call on RIL.
In the case of TCS, Goldman Sachs has a target of Rs 4,020 on the stock, Bernstein sees it at Rs 3,950. HSBC finds it worth Rs 3,625. Morgan Stanley has reduced its target to Rs 3,590 while Citi has maintained its 'Sell' call on the stock with a target of Rs 3,170.
Also read: HDFC Bank shares hover near 52-week low; is it correct time to accumulate?