NSE Nifty : Limited Downsides!

Post the Q2FY2019 earnings season, we at Prabhudas Lilladher had a look at the “Reuters consensus estimates” of the NSE Nifty 50 constituents to estimate how the situation stands currently, and if the current levels (17.5x PE for FY 2020) presents some major threats in terms of analyst perceptions.

Reuters News Service aggregates opinions from Institutional Analysts on a real time basis and presents “Consensus” estimates of Price Targets , apart from operating metrics , toplines and bottomlines etc.

To keep things simple, we took only the Price Targets that Reuters has collected from the analyst community – post the Q2 results – to see where we stand in terms of Nifty constituents – are we in a territory where most stocks are trading  above their fair values or not?

Highlights:

1. Fundamentally,  only 4 out of the 50 stocks are overvalued as per Reuters analyst estimates—a consensus price target of analysts for the stocks they track.The other 46 are trading below their fundamental value at current levels!
2. The average upside (Target less Current Price) in NSE 50 stands at 22% (and a median gain of 15%) from current price levels. This means there are hardly any stretched valuations – as a 20% buffer is good enough – within the constituents of the main index and could be one major factor that draws back FIIs towards large cap stocks.
3. Interestingly, if all the stocks met their Reuters targets together, the NSE Nifty index would be at 13,000 levels versus current levels of 10,600 currently. Of course that doesn’t happen as stocks have negative or neutral correlations, but it does indicate how much of the upsides exist.
4. Even if one discounts half of the upsides, we can still trade around at 11,700 on the Nifty easily

Apart from Reuters data, we also saw some basic price ranges and observed that :

1. 33 out of the 50 NSE Nifty stocks are just half way between their 52-week lows and 52-week highs, meaning that there could be enough fundamental momentum to justify upsides as and when triggers emerge.
2. Only 3 stocks are within 10% of their 52-week highs.
3. 15 stocks are within 10% of their 52-week lows – that is 30% of the stocks in the key index trading near 52 week lows even as Nifty is still trading at 10500- 10700 levels. Imagine if there is stability or indeed a bounce in these.

To summarise, the results season was one  of the best in terms of topline growth but not so in bottomlines – and analyst perception was hit badly as NBFC issues etc came to the limelight. The elections nearing also meant that analysts would have moderated their annual estimates and all of this would have been captured in the latest estimates.

Assuming this to be true. the above indicates not much downside fundamentally in terms of a “bottomup” valuations for NSE 50. Price action suggests that stocks are in a middling range but that there is no major froth which should worry anyone beyond a point.

Reuters Nifty Picks

We give below a list of the  Top 10 stocks (in terms of Reuters consensus price targets) and Bottom 10 stocks!

Happy Pickings! Do mail us at advisory@plindia.com for any specific queries on stocks or portfolios that you may have.

Note: The last column shows how much of the price range between the High and the Low the stock is trading at — so 1% means the stock is trading just 1% above its 52-week low and 95% means it is trading just 5% below its 52-week high.

10 STOCKS WITH MAX UPSIDES

10 STOCKS WITH MAX DOWNSIDES