Feb 5, 2009

Morgan Stanley: Consensus Turning Bearish, Will Get More So

•The street has lowered GDP growth and earnings estimates quite decisively over the past six months. However, these estimates are still higher than MS estimates and suggest risks to the downside. The consensus forecasts F2010 GDP growth at 5.6% (vs. 4.4% by MS).   The BSE Sensex earnings growth estimate is 6.7% and 5.3% for F2009 and F2010 respectively compared with 2.5% and -10% that we estimate on a top down basis.  The consensus has lowered the BSE Sensex earnings estimate by 19% and 29% respectively for F2009 and F2010 from their peak level in June.

•On a bottom-up basis, the consensus appears to be more bullish than our analysts. We find that the consensus has a "buy" or equivalent recommendation on 51% of our coverage universe considered for this study.   Our analysts rate only 33% of the same set of stocks "Overweight". 

•However, the consensus has turned more bearish than before. Thus, the mean consensus rating for the MS coverage universe is now at its lowest level since we starting collating data in June-06. The mean consensus rating for MS coverage universe has dropped to 0.22 (wherein a stock rated buy gets 1, hold gets 0 and sell gets -1) from 0.47 a year ago. The consensus is still bullish on mega caps with a very large percentage of the street rating stocks in excess of USD 5 billion as "buy" or its equivalent.  

•MS analysts differ from the consensus on about 55% of our universe considered for this study. The MS rating is below the consensus rating in two-thirds of these stocks. The strongest differences in opinion can be identified in 11 of these 59 stocks and are detailed on page 7.

•Within the MS coverage universe, for stocks which have coverage from more than five analysts, there are 14 stocks in which 80% of more of the street as a "Buy" or equivalent rating. 8 out of these 13 stocks are in the industrials and financials sectors. On the other hand, there are 13 stocks where more than 40% of the recommendations are "sell" or equivalent. The consensus appears to have the greatest positive conviction in healthcare, consumer staple, utility and industrial stocks and seems least bullish on consumer discretionary, telecoms and technology stocks.   Details on page 6 for those looking to trade contrarian to the strongest consensus calls.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.