For instance, the earnings growth of auto companies has been dwindling following volume contraction in the second-half of FY19.
Notwithstanding the soaring benchmark indices, analysts are slashing target prices for stocks. In the past six months, price targets for Nifty 50 components have been slashed by 6.5 per cent on average, the second-highest in Asia after Japan. The behaviour of analysts, this time around, contradicts their historical stance wherein they would raise stock target prices during market rallies.
Out of the 50 companies in the Nifty 50 index, 34 have seen a reduction in target prices in the past six months. In addition, 21 companies faced a reduction of more than 10 per cent while only six recorded more than 10 per cent increase in target prices.
Automobiles, metals and oil marketing companies reported target price cuts of 15-40 per cent. Tata Motors, Indiabulls Housing, Vedanta, Yes Bank and Maruti Suzuki recorded biggest cuts in that order.
The prime reason for the price cuts was earnings downgrade of 6-20 per cent. For instance, the earnings growth of auto companies has been dwindling following volume contraction in the second-half of FY19. India’s largest car maker Maruti Suzuki had guided for a double-digit growth at the beginning of the fiscal, but could deliver only 6 per cent volume growth at the end of the fiscal.
Based on the current target prices, companies such as Hindalco, ONGC, M&M, Coal India and Tata Motors offer the highest upside in the range of 19-28 per cent from their respective current market prices.
