Kotak Institutional Equities Upgrades Reliance Industries, L&T; Downgrades Hindalco

Brokerage firm Kotak Institutional Equities has revised its model portfolio, significantly increasing its stake in Reliance Industries Limited and Larsen & Toubro. The weightage for Reliance Industries was boosted by 100 basis points to 9.9%, while Larsen & Toubro saw a 70 basis points increase, bringing its weightage to 2.7%. This reallocation was facilitated by the removal of Hindalco Industries from the portfolio, which previously held a 170 basis points weightage. Kotak explained that Hindalco was removed due to its substantial price increase over the past month and three months, with a price target suggesting a potential 15% downside from current levels.

For Reliance Industries, Kotak anticipates strong performance across its three main segments in the coming quarters. This optimism is driven by factors such as robust global refining margins due to potential diesel supply disruptions, continued strength in the digital and telecom sectors potentially boosted by tariff increases, and a promising growth trajectory for its retail business. The brokerage has set a price target of ₹1,600 for Reliance Industries, indicating a potential upside of about 9% from current levels.

Larsen & Toubro is expected to show strong financial results, supported by a significant order backlog in its core Engineering and Construction (E&C) segment, and a large pipeline of new projects in both India and the Middle East. Kotak has assigned a price target of ₹4,200 to L&T, suggesting a potential upside of 7% from current levels.

Kotak also provided insights into the current earnings season, noting subdued trends in mass consumption goods but an uptick in select discretionary segments, moderate demand for IT services, and steady loan growth for banks. Overall, aggregate earnings are reported to be ahead of their estimates.

Impact This news is likely to influence investor sentiment towards these major Indian companies. The increased weightage by a prominent brokerage firm could boost confidence in Reliance Industries and Larsen & Toubro, potentially supporting their stock prices. Conversely, the downgrade and removal of Hindalco might lead to selling pressure on its stock, especially given the brokerage's outlook for meaningful downside. Investors often use such brokerage reports as indicators for potential future stock performance. Impact Rating: 7/10

Difficult Terms: Weightage: The proportion or significance given to a particular stock or asset within an investment portfolio. Basis Points: A unit of measure used in finance to describe the percentage change in a financial instrument. One basis point is equal to 0.01% (1/100th of a percent). Model Portfolio: A hypothetical portfolio created by an investment firm or analyst to represent their best investment ideas and strategies, used as a benchmark or guide. Order Backlog: The total value of contracts that a company has secured for future work or delivery but has not yet completed. Discretionary Segments: Parts of the economy or consumer spending that are not considered essential, such as luxury goods or entertainment, where spending can be reduced during economic downturns. Aggregate Earnings: The total earnings of a group of companies or an entire market, summed up together.