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Nearly 60 per cent companies from the top 500 universe have achieved their 12-month price targets set by analysts at the start of the year, thanks to a rally in the broader markets and liquidity support from both foreign and domestic investors.
As many as 267 of 453 companies from the BSE500 index are trading above their consensus price targets, according to the data compiled by Bloomberg.
Not all companies in the BSE500 index are tracked by analysts. Further, several companies have scanty coverage, which means that their consensus price targets may not be an accurate representation of their fair value.
Rail Vikas Nigam, Apar Industries, and Indian Overseas Bank are some of the companies that have surpassed their consensus targets by a wide margin. In contrast, Adani Energy Solutions, Rajesh Exports, Balaji Amines, and Delta Corp are among the companies trading below their 12-month price targets.
“Wherever there is momentum, liquidity is flowing in there, adding further to the momentum,” said Ambareesh Baliga, an independent equity analyst.
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Despite recent selling, foreign portfolio investors have been net buyers of Indian stocks worth Rs 1.15 trillion this year so far, while domestic institutional investors have pumped in Rs 1.40 trillion in this period.
On a year-to-date basis, the Nifty50 has gained 9 per cent, while the Nifty Midcap100 and Nifty Smallcap100 indices have surged 28 per cent and 33 per cent, respectively.
Analysts said the mid and smallcap universe dominated the list of stocks trading ahead of their fundamentals. As largecaps are widely tracked, most of them trade around their fair value in a positive market environment, they added.
“With the strong catch-up by midcaps and smallcaps in the last couple of months, we believe that the margin of safety at current levels in certain pockets has reduced as compared to largecaps. Keeping this in view, the broader market may see some time correction in the near term and flows will likely shift to largecaps. At current valuations and the prevailing scenario of higher bond yields, rising crude prices, and the stronger dollar index, largecaps appear to provide more margin of safety than midcaps and smallcaps,” said a note by Axis Securities.
Analysts revised upwards their price targets and earnings growth projections based on fresh news flow such as financial results, major acquisitions, and other business metrics.
For instance, Adani Energy and some other group companies fell below the consensus estimates as group stocks corrected sharply after US-based short-seller Hindenburg Research’s accusations on January 24 of corporate fraud and stock market manipulation. Similarly, Delta Corp declined after the firm received a notice from the Directorate General of GST Intelligence to pay an alleged tax liability of Rs 11,139 crore.
Public sector undertakings (PSUs) and midcap IT firms were among those which managed to surpass their target prices by big margins.
“The PSU theme has played out well, especially defence and railways, because of orders flowing in this space,” said Baliga.
Baliga said analysts were not coming up with “sell” calls as investors continued to lap up these stocks. The price targets of 237 of the 261 stocks were revised upwards in recent months. Price targets were revised lower only in a few cases.
Adani Green, Divis Laboratories, and Angel One were the stocks whose price targets saw a downward revision.
Most specialty chemical stocks are trading below their target prices.
“Specialty chemicals did extremely well in 2021. They were the first to benefit from the China-plus-one theme. But of late, their margins have fallen sharply as raw material prices have risen, and interest in them has tapered off,” said Baliga.
The outlook remains hazy as markets grapple with headwinds, elevated bond yields, fresh geopolitical tensions, and uncertainty about monetary policy.
“There has to be a correction within three months because valuations are stretched, elections are coming, and IPO stocks will absorb some of the liquidity,” said G Chokkalingam, founder of Equinomics.
Stocks could also see de-rating and target price cuts if they fail to meet Street expectations regarding the September-quarter results, warned analysts.
