Sensex's Top Laggards Could Be In For A Turnaround

The S&P BSE Sensex hit a fresh record high on Tuesday, crossing the 75,000 mark for the first time, with gains led by Tata Steel Ltd. and ICICI Bank Ltd. The benchmark took 83 sessions since its previous milestone high of 70,000, which it hit on Dec. 11 last year.

Tata Motors Ltd. and Tata Steel were the top performers in the index's 5,000-point rally, while Asian Paints Ltd. and Hindustan Unilever Ltd. were the top laggards.

Analysts' consensus estimates, according to Bloomberg, suggest that the recent underperformance among the top laggards may not continue, factoring in a higher upside potential than its top gainers.

India's largest paint-maker was the worst performer among the index's constituents, falling by over 10% during the index's 5,000-point rally.

However, a historical overview of the stock's performance across three years suggests that this recent underperformance may be the result of a seasonal underperformance in the scrip.

As a part of the consumption space, the stock price seems to reflect a seasonal decline in its fundamental performance.

While the current level hovers around the same level as three years ago, investors who bought shares in the April 2021 dip and sold them around the peak in September 2021 and repeated a similar strategy, might have more than doubled their investment, a study by NDTV Profit showed.

India's largest consumer staples company was among three of the five FMCG companies in Nifty 50 to miss analysts' earnings estimates during the third quarter.

The stock has fallen 12%, since results for the quarter ended December were released on Jan. 19.

A low farm income and emergence of regional competitors may continue to adversely affect the company, which has a relatively higher salience from rural areas.

Shares of India's largest private sector bank by assets has shown lackluster performance due to the post-merger woes that continue to impact its fundamentals.

After its Q3 results missed analysts' estimates, the stock fell over 9% on Jan. 17, leading to a decline of 2.25% in the Sensex—its most substantial fall in the index in over 16 months.

Street view on the index's top laggards amid the 5,000-point rally remains positive, according to analysts' consensus estimates provided by Bloomberg.

Of the 50 analysts tracking HDFC Bank, 45 maintain a 'buy' rating, with the 12-month consensus price target implying an upside potential of 22%.

Of the 43 analysts tracking HUL, 21 maintain a 'buy' stance, suggesting an upside potential of 19%, while 10 of 36 analysts maintain a 'buy' on Asian Paints, with a potential target price suggesting a 12% upside.

Shares of Tata Motors Ltd. have surged over 29% year-to-date, even after being the only Nifty stock to double investor wealth in 2023.

The company's net profit surged 138% year-on-year in the quarter ended December 2023, beating analysts' estimates, according to Bloomberg data.

Tata Motors was the top gainer in Sensex's rally, gaining by over 40%.

The company returned to profit in the third quarter, after reporting a loss in Q2.

The stock grew over 10.6% in March after a drop in iron ore prices, which is a key raw material for steel manufacturing, and is trading 6.6% higher in April.

Since Dec. 11, the stock has grown over 30%, as the second largest gainer in Sensex's rally.

The company acquired the remaining shares of Taro Pharmaceutical Industries Ltd., which it had entered into a merger agreement with, and indicated an expected date for closure during the first half of 2024.

It also reported a 17% jump in its profit for the quarter ended December, after which the stock climbed 12% in 10 sessions.

Consensus price targets for a 12-month period suggest a downside potential for all three top gainers.