The average reduction in 12-month price target for the BSE200 universe is 5 per cent. However, many companies have seen more than 20 per cent cut in their price targets.
A price target is the projected future price level of a stock arrived by an analysts based on earnings and margin forecasts.
The firms, whose share prices have been sharply reduced include YES Bank, Vodafone Idea, Graphite India, IDBI Bank and HEG, among others.
Banks, highly-leveraged companies, commodity companies, and pharma companies undergoing regulatory action are among those that have seen downward revision in target prices. “The downward revision in target prices of stocks by analysts is a function of Q1FY20 numbers that were below expectations in most cases and fresh data on slowdown in the economy reflected by high-frequency indicators,” said Deepak Jasani, head of retail research, HDFC Securities. Jasani added that in recent times, it is becoming more and more difficult for analysts to estimate the factors that could impact the price of a stock. This is because regulations and geopolitical developments have been taking place at a pace not seen in the past.
ICICI Securities, in a note, said consensus narrative has turned pessimistic dramatically since Budget day.
“Negative feedback loop from a sharp correction in stock prices has a role to play and is impacting the fundamental view, which has not changed materially over the past one month. Also, the slowdown observed during Q1FY20 adjusted for the transient nature of factors and indications from high-frequency data do not indicate a structural slowdown,” the brokerage said.
Experts further said that downward revisions are imminent as the current market levels do not indicate actual fundamental strength of the market and the second quarter is not looking particularly promising.
The Sensex is trading at a multiple of 18.72 times based on FY20 earnings estimates, much above its long-term average.
“There is no prospect of an immediate earnings revival, and hence valuations are not inexpensive even after the moderate correction. Therefore, there is no great reason for people to rush to invest at this juncture,” said UR Bhat, director, Dalton Capital. Slowing economic growth and lack of fiscal stimulus from the government has raised fears that earnings growth could remain sluggish for a few more quarters.
Another key concern for the markets
at this juncture seems to be selling by foreign funds. Foreign portfolio investors (FPI) have been aggressively trimming their exposure to Indian equities, selling to a tune of Rs 27,059 crore since July. Even the government’s scrapping of higher surcharge has made them net sellers in the last two sessions. “FPI selling is a worry because India is still trading at a premium to emerging markets
but our return on equity is not higher than other markets,” said Abhimanyu Sofat, head of research, IIFL.
Market participants say investors shouldn’t get carried away with falling stock prices and should focus on the business model and sustainability of the company’s earnings.