TCS, PNB among 5 stocks to ‘sell’ on weak valuations even as Sensex, Nifty back to pre-COVID level

As bulls took charge over Indian share markets, BSE Sensex and Nifty 50 climbed back to pre-coronavirus levels. In today’s trade, the 30-share Sensex was hovering around 40,700, while the NSE’s Nifty 50 was ruling above the crucial 11,950. So far since the start of October, markets have been on a gaining spree, adding 4.4 per cent in the previous week alone. From the March lows, stock markets have gained over 55 per cent. Research and brokerage firm Emkay Global Financial Services in its recent report has listed five large-cap stocks from IT bellwether Tata Consultancy Services to banking stock Punjab National Bank, with an ‘underweight’ rating. 

TCS: The brokerage firm retained sell rating on TCS given expensive valuations at 31x/27x FY21/22E earnings. Emkay has cut earnings in the past six months for TCS, however, the stock has rallied sharply after the fall seen in March this year, aided by the rally in the US markets, rupee depreciation and hopes that Indian IT will be more resilient as compared to domestic sectors. “Valuations, however, remain quite punchy,” it added.

PNB: The state-owned Punjab National Bank seems to be well-exposed to other beleaguered groups, according to the Emkay Global. It believes asset-quality pressures are unlikely to recede, more so post the current lockdown due to Covid-19. The brokerage firm in the report highlighted that the bank’s internal controls remain weak, leading to regular frauds, weighing in on its profitability and business growth. “Recent merger with otherwise weak United Bank and OBC, with the bank itself being in a weak position, will keep the stock under pressure for a prolonged period,” it said.

Bajaj Finance: Bajaj Finance has turned risk-averse after Covid-19, which will hurt margins and growth expectations. Financial services conglomerate has reported high bounce rates across business segments bringing forth asset quality risks in the near term. Despite the overall reduction in moratorium to 15.7% of AUM, collection efficiency continues to be challenged. The brokerage report noted that as the moratorium period comes to an end, it believes the stock, at 4.5x Sept’22E P/B, is inadequately pricing in the risks of the dominantly unsecured loan book.

Pidilite Industries: The slowdown in real estate and construction activity was already hurting growth for adhesives, which will see further deterioration post the Covid-19 disruption, says Emkay Global Financial Services. The report highlighted that the recovery is likely to be slower than consumer peers due to lower priority spends and increased cautiousness driving postponement of activity. Given downside risks to earnings from the disruption and delayed recovery, valuations look unreasonable.

ABB India: Deteriorating macro environment and Covid-19-related disruptions will impact recovery in the Industrial Automation and Motion segments. We expect disappointment on the irrational cost rationalization hopes that the Street has for the company after the demerger and are thus lower than Street on EPS estimates.

(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)