)
No sooner did the market touch a new high, we have seen a number of broking houses trying to join the party by upgrading their recommendations. This is not the first time that analysts have been caught on the wrong foot. A few months back, we had heard Nifty targets of 5,500 from these analysts, now we have figures that are talking of 6,900. Analyst forecasts have increasingly become a lag indicator to the market, their recommendations come when the trend has well been established or it is in the final phase.
This time around however, they cannot really be blamed for getting it wrong. Fundamentally there has been no improvement, September quarter results were more or less in line with expectations. It was liquidity flow that threw their recommendations out of the window.
The major task of an analyst is to predict the fundamentals and based on these fundamentals and looking at various parameters, including mood and money flow, come out with a recommendation. Analysts have been handling the fundamental portion reasonably well but it is the recommendation, where they regularly commit mistakes. Money flow and market sentiment are difficult to measure and hence difficult to predict.
Yet an analyst is paid and known for his recommendations, because it is his prediction skills which can be monetised and not his calculation skills.Goldman Sachs Asia's strategist, Timothy Moe has now stuck his neck out in protecting his firm's recommendation of a 6,900 target for Nifty. The broking firm has upgraded the country citing improving macro and micro cues. Interestingly, Timothy Moe reaffirmed his recommendations in an interview to CNBC on the same day when S&P affirmed India's sovereign rating adding that the outlook for the country remains negative.
Goldman Sachs seems to be capturing the expected political change at the centre which it feels will keep markets higher. Timothy says that market is currently trading politics over fundamentals (now that's a new one). In his note, Timothy says that "We are Modi-fying our view on Indian and believe it's appropriate to raise our investment stance, recognising that equity market has risen sharply from 3Q lows".
On the fundamental front,Timothy says that one of the biggest concern was a falling rupee which has been addressed. He says there are green shoots of a pick-up in activity that are visible. These can be seen in pick up in some infrastructure projects and an increase in raw material to sales inventory, which signals companies are gearing up for better times ahead.
Timothy also feels that there is limited downside to the market, and even a tapering will have little impact on the market. Goldman Sachs is among the top broking firms in India which routes FII money in the market. His views not only takes into account the fundamental part of the market but also expected money flow.
Goldman Sachs, with its BRICS report had helped propel the rally in the previous decade and the market is hoping that it will repeat its earlier performance.
ALSO READ: Modi-fuelled rally may not last
But not too many broking firms are as optimistic as the future trend to a large extent will depend on the political outcome. And predicting political results is a trickier job than predicting Nifty levels. Betting on a few green shoots randomly visible is a risky preposition. And if the same set of political class or worse a third front comes to power, we can see a mad rush for money trying to exit, even before the swearing in ceremony of the new government.
So has Goldman Sachs once again jumped the gun, the same way it did on BRICS. We all know the current state of affairs in BRICS nations. In hindsight, it looks more of a marketing gimmick, especially the de-coupling theories.
