Cummins India Ltd. Upgraded to Buy on Strong Technical and Fundamental Signals

Quality Assessment: Strong Fundamentals Underpin Confidence

Cummins India continues to demonstrate solid fundamental strength, which remains a key pillar supporting the upgrade. The company boasts an impressive average Return on Equity (ROE) of 22.90%, signalling efficient capital utilisation and consistent profitability. This is complemented by a healthy long-term growth trajectory, with net sales expanding at an annualised rate of 22.73% and operating profit surging by 45.30% over the same period. Notably, the company maintains a near-zero average debt-to-equity ratio, underscoring a conservative capital structure that mitigates financial risk.

Institutional investors hold a significant 40.14% stake in Cummins India, reflecting strong confidence from sophisticated market participants who typically conduct rigorous fundamental analysis. This institutional backing adds credibility to the company’s quality profile and supports the positive outlook.

Valuation: Premium Pricing Reflects Market Confidence but Warrants Caution

While the upgrade is supported by strong fundamentals, valuation metrics present a mixed picture. Cummins India trades at a Price to Book (P/B) ratio of 16.3, which is considered very expensive relative to its peers and historical averages. The company’s Return on Equity of 29.2% further accentuates this premium valuation. Investors are effectively paying a high price for quality and growth prospects.

Moreover, the Price/Earnings to Growth (PEG) ratio stands at 3.5, indicating that the stock’s price growth has outpaced earnings growth. Over the past year, profits have increased by 16%, whereas the stock price has surged by 72.50%. This divergence suggests that while the market is optimistic, there is a risk of valuation overheating if earnings momentum does not accelerate accordingly.

Financial Trend: Mixed Quarterly Performance but Strong Long-Term Growth

The company reported flat financial performance in Q3 FY25-26, with quarterly earnings per share (EPS) at a low of ₹17.53. This stagnation in near-term results contrasts with the company’s robust long-term growth profile. Over the last five years, Cummins India has delivered a remarkable 504.21% return, vastly outperforming the Sensex’s 62.11% return over the same period. Even in the last one year, the stock has generated a 72.50% return compared to the Sensex’s 8.64%.

Net sales and operating profit growth rates remain strong, reinforcing the company’s ability to sustain growth despite short-term fluctuations. The flat quarterly results highlight the need for investors to focus on the broader trend rather than transient setbacks.

Technicals: Upgrade from Mildly Bullish to Bullish Signals

The technical outlook has been a decisive factor in the recent upgrade. The technical grade has improved from mildly bullish to bullish, reflecting stronger momentum and positive price action. Key indicators reveal a nuanced but generally optimistic picture:

• MACD: Weekly readings remain mildly bearish, but monthly MACD is bullish, indicating longer-term upward momentum.
• RSI: Both weekly and monthly Relative Strength Index (RSI) show no clear signals, suggesting the stock is not overbought or oversold.
• Bollinger Bands: Both weekly and monthly indicators are bullish, signalling price strength and potential for further gains.
• Moving Averages: Daily moving averages are bullish, supporting short-term upward trends.
• KST (Know Sure Thing): Weekly and monthly KST remain mildly bearish, indicating some caution in momentum.
• Dow Theory: Both weekly and monthly trends are bullish, confirming a positive market phase.
• On-Balance Volume (OBV): Weekly OBV is mildly bullish, while monthly OBV is mildly bearish, reflecting mixed volume trends.

Overall, the technical indicators suggest a strengthening trend, justifying the upgrade in technical grade and supporting the Buy rating.

Market Performance and Price Action

Despite a day change of -1.72% on 20 Feb 2026, Cummins India’s price remains resilient at ₹4,645.45, close to its 52-week high of ₹4,782.50. The stock’s 52-week low stands at ₹2,594.75, highlighting significant appreciation over the past year. The stock’s recent weekly return of 4.89% and monthly return of 15.32% have outpaced the Sensex’s negative returns over the same periods, reinforcing its status as a market outperformer.

Risks and Considerations

Investors should remain mindful of certain risks despite the upgrade. The flat quarterly results and relatively low EPS of ₹17.53 in Q3 FY25-26 highlight potential near-term earnings volatility. The premium valuation metrics, including a high P/B ratio and PEG ratio, suggest that the stock’s price may be vulnerable to corrections if earnings growth slows.

Additionally, some technical indicators such as the weekly MACD and KST remain mildly bearish, signalling that momentum is not uniformly strong across all timeframes. These factors warrant cautious monitoring, especially for investors with shorter investment horizons.

Conclusion: A Balanced Upgrade Reflecting Strength and Caution

The upgrade of Cummins India Ltd. from Hold to Buy by MarketsMOJO on 19 Feb 2026 is a reflection of the company’s strong long-term fundamentals, improved technical outlook, and market-beating returns. The quality of earnings, conservative capital structure, and institutional backing provide a solid foundation for future growth. However, the premium valuation and mixed short-term financial and technical signals suggest that investors should approach with measured optimism.

Overall, the Buy rating is well justified for investors seeking exposure to a high-quality, growth-oriented company in the Compressors, Pumps & Diesel Engines sector, with the understanding that near-term volatility may persist.

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