Bulk of the earnings upgrade over the past one year has been driven by stocks related to domestic cyclical demand (financials, consumer discretionary, auto, tobacco, industrials) and internet stocks, said ICICI Securities. On the flip side, bulk of downgrades was driven by stocks related to defensive sectors (IT, healthcare, staples) and commodities (metals, cement).

“Given the nature of the economic recovery in India which is led by growth in ‘gross fixed capital formation’ or capex cycle (refer our note), we expect the earnings upgrade cycle to continue for domestic cyclicals,” it further said. Global economic environment continues to be uncertain and could weigh on earnings revision of the stocks related to global economy, ICICI Securities added.

Maximum upgrade stocks

Bank of Baroda, Varun Beverages, Tube Investments, Zomato, ABB, Canara Bank, Trent, Coal India, Bajaj Finserv and M&M from large-caps have witnessed maximum consensus upgrades; GIC, PB Fintech, Union Bank, Indian Hotels and Bank of India from mid-caps; and Apar Industries, Rainbow Child, Ujjivan SFB, Safari Industries and Wonderla Holidays from-small caps too were updraged.

On the other hand, Tech Mahindra, Apollo Hospitals, Shree Cement, ICICI Prudential Life, Bharti Airtel, Grasim Ind, Divi’s Lab, Adani Wilmar, Tata Steel and Vedanta (large-caps), Gland Pharma, Aditya Birla Fashion, Aarti Industries, Laurus Labs and FSN-E-Commerce (Paytm) (from mid-caps) and Mahindra Logistics, Johnson Control, Sagar Cements, V-Mart Retail and India Cements (Small-caps) saw a maximum downgrades, it said.

Profits decline 4%

The aggregate profit pool estimate of about 600 stocks for FY24 currently stands at Rs 12.75-lakh crore as compared to Rs 13.3-lakh-crore a year ago. “The 4% downgrade to aggregate profit pool appears reasonable given the shocks such as the massive QT cycle, Russia-Ukraine war and banking crisis in DMs. Also, the bulk of earnings upgrades over the past one year have been driven by domestic cyclicals and internet stocks,” it added.

Overall, the market cap of those 600 stocks rose by 28 per cent over the last one year to reach Rs 275 lakh crore with bulk of market cap expansion happening over the past 3 months. The rapid expansion in market cap over the recent past is likely due to a sharp decline in ‘equity risk premium’ and benign ‘risk free rate’ environment,” ICICI Securities said.