Varun Beverages Downgraded to Sell Amid Technical Weakness and Valuation Concerns

Technical Trends Turn Bearish

The most significant trigger for the downgrade is the change in Varun Beverages’ technical grade from mildly bearish to bearish. Key momentum indicators have weakened across weekly and monthly timeframes. The Moving Average Convergence Divergence (MACD) remains bearish on a weekly basis and mildly bearish monthly, signalling a lack of upward momentum. The Relative Strength Index (RSI) shows no clear signal, indicating indecision among traders.

Bollinger Bands have shifted from mildly bearish weekly to outright bearish monthly, suggesting increased volatility with downward pressure. Daily moving averages confirm a bearish trend, while the KST indicator presents a mixed picture with weekly bullish but monthly bearish signals. Dow Theory and On-Balance Volume (OBV) indicators also reflect a lack of clear trend or mildly bearish outlook on monthly charts.

These technical signals collectively point to weakening price momentum and increased risk of further downside, prompting a more cautious stance from analysts.

Valuation Remains Expensive Despite Underperformance

Varun Beverages currently trades at ₹458.05, close to its recent close of ₹455.65, but well below its 52-week high of ₹568.50. Despite this, the stock’s valuation metrics remain stretched. The company’s Price to Book Value stands at 7.9, which is considered very expensive relative to its peers and historical averages. Its Return on Equity (ROE) is a healthy 15.5%, but the Price/Earnings to Growth (PEG) ratio is elevated at 3, indicating that earnings growth is not sufficiently priced in to justify the premium valuation.

Over the past year, Varun Beverages has underperformed the broader market, generating a negative return of -3.75% compared to the BSE500’s 13.53% gain. This underperformance, despite a 17% rise in profits, raises concerns about the stock’s ability to sustain its premium valuation in the near term.

Financial Trend Shows Flat Recent Performance

Varun Beverages reported flat financial results for the quarter ending December 2025, which has contributed to the cautious outlook. The company’s Return on Capital Employed (ROCE) for the half-year is at a low 18.92%, while the Debtors Turnover Ratio stands at 17.79 times, indicating slower collection efficiency. These metrics suggest a stagnation in operational efficiency and capital utilisation.

Despite this, the company maintains strong long-term fundamentals. It boasts an average ROE of 21.43% over the years, with net sales growing at an annualised rate of 27.44% and operating profit expanding by 41.61%. The company’s debt servicing ability remains robust, with a low Debt to EBITDA ratio of 0.94 times, reflecting prudent financial management.

Market Position and Institutional Confidence

Varun Beverages is the largest company in the Beverages sector with a market capitalisation of ₹1,54,917 crores, representing 41.21% of the sector’s total market cap. Its annual sales of ₹21,685.38 crores account for 34.00% of the industry’s revenue, underscoring its dominant market position.

Institutional investors hold a significant 33.87% stake in the company, signalling confidence from well-resourced market participants who typically conduct thorough fundamental analysis. However, even this strong backing has not prevented the recent technical deterioration and valuation concerns from weighing on the stock’s rating.

Comparative Returns Highlight Mixed Performance

Examining returns over various periods reveals a mixed picture. While Varun Beverages has delivered impressive long-term gains of 78.47% over three years and a staggering 451.09% over five years, its short-term performance has been lacklustre. The stock returned only 0.38% in the past week, underperforming the Sensex which declined by 0.98%. Over one month and year-to-date periods, the stock has declined by 8.44% and 6.49% respectively, compared to marginal or positive returns in the broader market.

This divergence between long-term strength and short-term weakness is a key factor in the downgrade, as it suggests that recent market sentiment and technical factors are outweighing fundamental positives.

Summary of Ratings and Outlook

MarketsMOJO’s current Mojo Score for Varun Beverages stands at 44.0, with a Mojo Grade of Sell, downgraded from Hold as of 17 Feb 2026. The Market Cap Grade remains at 1, reflecting the company’s large size but not necessarily its near-term attractiveness. The day change on 18 Feb 2026 was a modest 0.53%, indicating limited immediate market reaction.

While the company’s strong fundamentals and dominant market position provide a solid base, the downgrade reflects a prudent response to deteriorating technical indicators, expensive valuation metrics, and flat recent financial trends. Investors are advised to weigh these factors carefully, considering the stock’s underperformance relative to the broader market and the potential for further downside in the near term.

Investment Implications

For investors, the downgrade signals caution. The bearish technical outlook suggests that momentum may continue to weaken, while the high valuation relative to earnings growth raises questions about the stock’s upside potential. The flat financial performance in the latest quarter adds to the uncertainty, despite the company’s strong long-term growth trajectory and institutional backing.

Those holding Varun Beverages shares may consider trimming exposure or waiting for clearer signs of technical recovery before adding to positions. Prospective investors should evaluate alternative opportunities within the beverages sector or other large-cap stocks with more favourable technical and valuation profiles.

Conclusion

Varun Beverages Ltd’s downgrade to Sell by MarketsMOJO reflects a comprehensive reassessment of its technical, valuation, financial, and market trend parameters. While the company remains a sector leader with robust fundamentals, the current market environment and stock-specific signals warrant a cautious approach. Monitoring upcoming quarterly results and technical developments will be crucial for investors seeking to reassess the stock’s outlook in the coming months.

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