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Retail investors often use brokerage price targets to pick stocks, but this approach has struggled when measured against actual stock performance over the past year.
Currently, 64 per cent — 286 out of 445 stocks in the BSE 500 — are trading below their consensus targets from a year ago, weighed down by a five-month market selloff.
Among the biggest underperformers are Rajesh Exports, Sterling and Wilson Renewable Energy, Tanla Platforms, IndusInd Bank, Honasa Consumer, and Sonata Software, all trading well below their projected values.
Conversely, stocks such as Hitachi Energy India, Godfrey Phillips India, Dixon Technologies (India), Aegis Logistics, Cochin Shipyard, and Adani Green Energy are trading above their consensus targets.
A weak equity market, along with company-specific setbacks, has driven much of this underperformance. For instance, IndusInd Bank’s shares fell sharply this week after an internal review uncovered discrepancies in its foreign exchange derivatives transactions, reducing its net worth by 2.35 per cent.
Experts caution that price targets tend to mislead during bearish phases, as stocks often struggle to keep up with analyst projections.
Deepak Jasani, former head of retail research at HDFC Securities, said, “Markets have fallen further in the past month. Analysts typically set optimistic target prices, but these will likely be revised downward unless earnings see a strong recovery. This trend may persist until conditions improve.”
Ambareesh Baliga, an independent equity analyst, noted that target prices are often inflated during bull markets to justify ‘buy’ ratings.
“Most brokerages set targets 10-15 per cent above current prices to support a ‘buy’ call. Otherwise, they issue ‘hold’ or ‘neutral’ ratings. With the recent sharp correction, many stocks are now trading below their targets — but that doesn’t mean they’ll bounce back,” he explained.
Looking ahead, brokerages may keep their ‘buy’ recommendations while adjusting targets downward. Coverage isn’t usually dropped immediately for struggling stocks; instead, target prices are revised lower, often followed by a ‘hold’ rating before being phased out.
Baliga advised, “Investors shouldn’t buy stocks based solely on target prices. They should review brokerage reports, assessing recent financials, management commentary, and sectoral outlook. Positions should only be taken if the rationale is compelling.”
Stocks will likely remain below their targets unless market conditions improve, with a rebound that hinges on stronger earnings and global stability.
Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, said, “Last year’s bull market supported high price-to-earnings multiples, pushing up target prices. But with limited upside, we’ve seen more ‘neutral’ calls than ‘buy’ recommendations.”
He added, “Earnings will likely stay subdued through the January-March quarter, with improvement expected from the second quarter of 2025-26. Valuations are now more reasonable and could become even more attractive if markets decline further. But near-term risks persist — earnings growth remains elusive, foreign investors may continue selling, and global uncertainties, including potential tariff wars, loom large.”
