Consensus price targets for Nifty50 companies signal greater upside

The current market rally has more steam left if consensus price targets for the Nifty components are any indication.

A study by domestic brokerage Motilal Oswal has looked at the average price target of 50 stocks by all analysts to arrive at a target for the Nifty. It works out to 19,717, implying a 12 per cent upside from the current levels.

Stocks in the private banking, oil and gas (mainly Reliance Industries), and the non-banking financial space are likely to contribute the most to this upside. Private banks alone will contribute 35 per cent, while 10 stocks will account for 72 per cent of the gains.

“Analyst sentiment, which is measured by the proportion of ‘buy’/’hold’/’sell’ ratings, has improved over the past year, with the percentage of ‘buy’ ratings increasing to 75 per cent, from 74 per cent a year ago. Further, the percentage of ‘hold’ has remained stable. ‘Sell’ ratings have declined to 9 per cent, from 10 per cent a year ago,” observes a note by Motilal Oswal.

Experts said the shortcoming of using this method to arrive at Nifty price targets is that analysts tracking individual stocks tend to be more liberal with valuations and price targets, which could inflate the overall target.

Meanwhile, strategists who arrive at a holistic target for the Nifty or the Sensex place a great deal of emphasis on the overall macro, global environment, and historical averages. Also, factors such as portfolio flows don’t get captured while taking a sum-of-the-parts approach, added experts.

After a sharp upmove in the market over the past two months, the Nifty valuations have once again moved past their historical averages. The index currently trades at 23x its trailing 12-month earnings versus the historical average of 21x.  

Stocks with the most ‘buy’ ratings include ICICI Bank (98 per cent of total calls), followed by Larsen & Toubro (98 per cent), ITC (97 per cent), State Bank of India (96 per cent), and Housing Development Finance Corporation (96 per cent).

Conversely, stocks with the least number of ‘buy’ calls are JSW Steel (24 per cent), Wipro (33 per cent), Shree Cement (38 per cent), Tata Consultancy Services (47 per cent), and Asian Paints (48 per cent).

Meanwhile, stocks with the highest target upsides are UPL, formerly United Phosphorus (about 36 per cent from current levels), Oil and Natural Gas Corporation (32 per cent), HDFC Life (28 per cent), Axis Bank (25 per cent), and Bharti Airtel (25 per cent).

On the other hand, stocks with most target downsides are JSW Steel (potential downside of 18 per cent from the current levels), Asian Paints (4 per cent), Eicher Motors (3 per cent), Coal India (2 per cent), and Wipro (1 per cent).

Between 10 and 54 analysts track companies that are part of the Nifty50 Index, with Maruti Suzuki India being the most-tracked company and Grasim Industries and Bajaj Finserv being the least-covered stocks.