As the year comes to an end, we take a look at how brokerage analysts expected sectors and stocks to perform in 2022, and how they actually did. Hit by turbulence, Indian financial markets were very volatile in 2022. The war in Europe, supply chain disruptions, high inflation, economic slowdown and Covid-19 made for a bumpy ride.

These external shocks led to a divergence in how various sectors performed. Some of the best performing indices like the BSE BANKEX, Nifty FMCG and S&P BSE Industrials gained 23.2%, 19.9% and 20.9% respectively over the past year till December 30. But Nifty IT and Nifty Pharma fell 24.8% and 10.2% respectively over the same period.

Given shifting macroeconomic conditions, brokerages reconsidered some of their picks and recommendations over the year. At the start of the year, the pharma sector, which took centre stage during the Covid era, was very popular among brokers. But as falling Covid-19 cases and the war in Europe changed the business environment for pharma companies, brokers shifted their focus to other sectors like automobiles, software and FMCG.

Banking & Finance, Auto sectors most popular among analysts 

Banking & Finance (BFSI) was a popular sector for analysts,  with the most companies tracked in 2022. While it had only 25 stocks covered at the beginning of 2022, the year ended with 34 stocks being covered by brokers. As the sector with the highest number of listed companies at 465 and comprising one-fifth of the Nifty 50 index, it’s not surprising that it was the most heavily followed.

Software & Services, Automobiles & Auto Components, Cement & Construction and FMCG were other sectors where analysts increased the number of companies covered by the end of the year. Analyst interest saw the biggest jump, from 12 to 19 stocks, in the Software & Services sector. This was most likely due to an expected fall in attrition rates and a rise in demand from 2023 onwards.

The Pharmaceuticals & Biotechnology sector saw the biggest fall in analyst interest in 2022. It began the year with 23 stocks being covered and ended with just 13 companies followed by analysts. The sector fell out of favour with investors as it was affected by falling covid-19 revenues, high input costs, and supply chain disruptions. 

Large banks like ICICI Bank and HDFC Bank hog analysts’ attention in 2022 

ICICI Bank began the year with the highest number of brokers covering it at 12 and ended at the top of the list again with 19.  Analyst interest in HDFC Bank also surged during 2022, from 10 to 19. 

Overall, the top six most covered companies at the end of January didn’t see a drop in interest at the end of the year.

BFSI, Software and Auto sectors end 2022 with the most buy calls

The BFSI sector had the highest number of companies with a buy recommendation in 2022. While the number was 16 in January, it doubled to 32 in December. The sector had a good run this year, as credit demand grew despite repo rate hikes. The Nifty Bank was one of the best-performing indices in 2022, gaining 23% over the past year. Currently, brokerages are covering 34 banking stocks, of which 32 have one or more buy recommendations.

Going into 2023, automobiles and IT sectors have 19 companies each covered by brokers and all of those stocks have one or more brokerage analysts recommending a buy call. Both sectors saw a jump in the number of stocks with buy calls by the end of 2022. The automobile sector had 14 stocks with buy calls in January and the software & services sector had five.

The pharmaceuticals sector had 16 stocks with buy calls by the end of January but fell to 12 by December. Given the macroeconomic headwinds impacting the sector, analysts changed their stance on pharma stocks in 2022.

HDFC Bank sees a jump in number of analysts with buy recommendations

In January, ICICI Bank and Infosys had the highest number of analysts assigning them a buy rating; both had 10 each. Among the top seven companies with buy recommendations, five were from the banking sector, and two were from the software & services sector.  

However, looking at the one-year price change, both Infosys and HCL Technologies declined. They missed the average broker target upside by a wide margin. This was  due to the IT sector being impacted by industry-wide headwinds like high attrition rates and lower demand from the US and Europe. Over the past year, BSE IT sector fell by 23%.

Barring HDFC Bank, all other major banks beat the average broker target upsides they had in January. Federal Bank grew by 69.7% and beat its average target upside by the largest margin. IndusInd Bank was the second-best performer, which rose by 40.2% over the past year.  

In December, the list of stocks with the most buy ratings from brokerages remained largely identical. While HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank and Federal Bank remained in the top seven list at the beginning and end of the year, the new entrants in December with multiple buy calls were State Bank of India and Ashok Leyland. Going into 2023, most brokers seem to be very optimistic about the growth prospects of major banks.

The unlovely number 1: Auto sector leads with most sell calls

The auto sector leads in the number of stocks with one or more analysts recommending a sell rating. It had eight stocks with sell ratings in January and the number remained the same by the end of the year as well. However the sector had many stocks with buy ratings as well.

The retailing sector also witnessed a huge spike in the number of companies with sell ratings by the end of the year. In January, the sector had only one such company but it jumped to seven in December. However, each of the seven companies has only one brokerage analyst recommending a sell rating. The banking sector also saw a jump in the number of stocks with sell recommendations. The number went up to six from two.

JSW Steel ends the year with four brokerages assigning it a sell call

Berger Paints, Eicher Motors and Bharat Heavy Electricals had three brokerage analysts each recommending a sell. These companies had the highest number of analysts pessimistic about their prospects in January. They were followed by Ashok Leyland, Bata India and Balkrishna Industries, with two brokerages each. These companies were negatively impacted by pandemic-induced lockdowns, which lowered demand.

Despite having low average broker target upside, companies like Eicher Motors, Bharat Heavy Electricals and Ashok Leyland beat expectations and saw strong gains. In fact, of the four brokers covering Bharat Heavy Electricals, three assigned it a sell rating. This stock grew 36.3% over the past year, led by robust order inflow.

Berger Paints, Bata India and Balkrishna Industries, on the other hand, fell over the same time period. All of them missed the broker average target upside they had at the end of January. The average target downside for Bata India was 6.7% and the stock contracted by 8.9% over the year. All these stocks dragged as they were unable to completely offset the impact of high input costs and supply chain disruptions.

The list of stocks with the most sell calls changed completely by the end of December. JSW Steel and Tata Elxsi led with 4 and 3 brokerage analysts respectively. Half the broker analysts following JSW Steel assigned it a sell rating. 

Among the top 10 stocks analysts were most pessimistic on, three were cement players and two software companies. Despite the automobile sector having the highest number of stocks with sell recommendations, only one company from the sector made it to the top 10. All the other seven auto stocks had only one broker recommending a sell rating.  

Recovery in growth expected across sectors in 2023

Stepping into 2023, investors and analysts expect strong growth in many sectors on the back of a robust recovery in economic growth, falling commodity prices and strong domestic inflows. However, Goldman Sachs and Jefferies expect muted share price upside in 2023 given the expensive valuations of Indian equities.  

However, it looks like most analysts are bullish on sectors like banking, automobiles, industrials and FMCG. Although major economic tailwinds are expected to aid the performance of Indian markets, outside risks such as the resurgence of Covid-19 remain. 

This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.