Kennametal India Ltd Downgraded to Sell Amid Valuation and Technical Concerns

Technical Trends Signal Caution Despite Minor Improvements

The downgrade was primarily triggered by a nuanced change in the technical grade, which shifted from bearish to mildly bearish. While this may suggest a slight easing of negative momentum, the broader technical indicators remain largely unfavourable. The Moving Average Convergence Divergence (MACD) on both weekly and monthly charts continues to signal bearishness, indicating persistent downward pressure on the stock price.

Relative Strength Index (RSI) readings on weekly and monthly timeframes show no clear signals, reflecting a lack of strong directional momentum. Meanwhile, Bollinger Bands present a mixed picture: weekly data is bullish, but monthly trends remain mildly bearish, suggesting short-term volatility within a longer-term downtrend.

Other technical tools such as the Know Sure Thing (KST) oscillator and Dow Theory assessments reinforce this cautious stance, with weekly and monthly KST readings bearish and Dow Theory indicating no clear weekly trend and a mildly bearish monthly trend. Daily moving averages also remain mildly bearish, underscoring the absence of a convincing recovery in price action.

On 6 February 2026, Kennametal India’s stock closed at ₹2,132.00, up 0.90% from the previous close of ₹2,112.95, with intraday highs reaching ₹2,165.00 and lows at ₹2,100.00. The stock remains below its 52-week high of ₹2,745.10 but above the 52-week low of ₹1,932.10, reflecting a volatile trading range.

Valuation Metrics Remain Expensive Despite Flat Financial Performance

Kennametal India’s valuation grade has been downgraded from very expensive to expensive, reflecting a slight moderation but still indicating a premium pricing relative to earnings and book value. The company’s price-to-earnings (PE) ratio stands at 42.87, which is high compared to many peers in the engineering and industrial manufacturing sectors. For context, competitors such as Craftsman Auto trade at a PE of 52.85, while others like Shriram Pistons and Engineers India have more moderate valuations of 23.83 and 18.19 respectively.

Other valuation multiples also highlight the premium nature of Kennametal India’s stock. The enterprise value to EBITDA (EV/EBITDA) ratio is 24.77, and the price-to-book value ratio is 6.27, both signalling expensive market pricing. The PEG ratio, which adjusts the PE ratio for earnings growth, is notably elevated at 42.87, suggesting that the stock’s price far outpaces its earnings growth potential.

Despite this, the company maintains a respectable return on capital employed (ROCE) of 21.59% and return on equity (ROE) of 14.63%, indicating efficient use of capital and shareholder funds. Dividend yield remains modest at 1.88%, which may not be sufficiently attractive to income-focused investors given the valuation premium.

These valuation factors, combined with flat financial results in the third quarter of fiscal year 2025-26, have contributed to the cautious stance. The company’s profits have risen marginally by 0.2% over the past year, which does not justify the high multiples currently assigned by the market.

Financial Trend: Flat Performance and Underwhelming Returns

Financially, Kennametal India has exhibited a flat performance in the recent quarter, with no significant growth in revenues or profits. This stagnation is a key concern given the stock’s lofty valuation. Over the past year, the stock has delivered a negative return of -11.13%, underperforming the benchmark Sensex, which gained 6.44% over the same period.

Longer-term returns also paint a mixed picture. While the stock has generated impressive gains over five years (119.91%) and ten years (198.18%), it has lagged the Sensex’s 36.94% and 238.44% returns respectively over three and ten years. This underperformance relative to the broader market and sector peers raises questions about the stock’s ability to sustain momentum.

On a positive note, the company’s operating profit has grown at an annualised rate of 51.31%, indicating healthy underlying business growth. However, this has not translated into commensurate stock price appreciation or earnings growth, as reflected in the high PEG ratio and flat quarterly results.

Quality Assessment: Strong Fundamentals but Limited Debt

Kennametal India’s quality parameters remain solid, with a low average debt-to-equity ratio of zero, signalling a clean balance sheet and minimal financial risk. The company is predominantly promoter-owned, which often aligns management interests with shareholders. However, the flat recent financial performance and expensive valuation have tempered enthusiasm.

While the company’s return on equity of 14.63% is respectable, it does not stand out strongly against peers, especially given the premium valuation. The combination of flat quarterly results and high multiples suggests that investors are paying for past performance rather than future growth prospects at this stage.

Market Performance and Peer Comparison

Examining Kennametal India’s market returns relative to the Sensex reveals a pattern of underperformance in recent years. The stock outperformed the benchmark over the past week (+6.59% vs +0.91%) and month (+1.10% vs -2.49%), but these short-term gains have not offset longer-term weaknesses. Year-to-date returns are positive at 1.76%, while the Sensex is down 2.24%. However, over one year, the stock has declined by 11.13%, contrasting with the Sensex’s 6.44% gain.

Over three years, Kennametal India’s return is essentially flat (-0.24%) compared to the Sensex’s robust 36.94%. This trend of underperformance is a critical factor in the downgrade decision, signalling that the stock has not kept pace with broader market or sector growth despite its premium valuation.

Peer comparisons further highlight valuation concerns. While some competitors like Craftsman Auto and Shriram Pistons trade at fair or expensive valuations with lower PE ratios, Kennametal India’s multiples remain elevated. This disparity suggests limited upside potential unless the company can deliver stronger earnings growth or operational improvements.

Conclusion: Downgrade Reflects Valuation and Technical Concerns Amid Flat Financials

The downgrade of Kennametal India Ltd from Hold to Sell by MarketsMOJO on 5 February 2026 is a reflection of multiple converging factors. The technical outlook remains cautious with predominantly bearish indicators despite a mild improvement in trend grading. Valuation metrics, while slightly moderated, continue to price the stock expensively relative to earnings and book value, with a PEG ratio that signals overvaluation.

Financially, the company’s flat quarterly performance and underwhelming returns over the past year and three years contrast with its premium market pricing. Although Kennametal India boasts strong capital efficiency and a clean balance sheet, these positives have not translated into compelling investment returns recently.

Investors should weigh these factors carefully, considering the stock’s historical underperformance against the Sensex and peers, alongside the current technical and valuation challenges. The downgrade to Sell suggests a cautious stance, favouring alternative opportunities within the industrial manufacturing sector or broader market.

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