This post is in continuation of my forecasting folly series (see here)
One characteristic of a bull market is that brokerage reports tend to “chase the price”.
What usually happens is that a brokerage firmt issues a report with a buy recommendation and a target price.
However the markets being exuberant, the stock price moves up quickly leaving the target price in the dust.
Hence the equity analyst is forced to issue another report with a higher target price and the process repeats itself.
This “chase the price” is beautifully illustrated by the example of Aarti Drugs.Many thanks to Abhishek Pradhan for bringing this to my attention.
On June 26,2013, Sunidhi Securities issued a buy recommendation on Aarti Drugs with a target price of Rs.260.The stock was quoting at 190 Rs/share then
Then the bull market took off and prices of all securities started zooming.
So on May 02.2014, Sunidhi Securities issued another buy recommendation on Aarti Drugs with a target price of Rs.444.The stock was quoting at 355 Rs/share then.
The bull market continued unabated.
So Sunidhi Securities did what any self-respecting brokerage would.
On August 12.2014, Sunidhi Securities again issued a buy recommendation on Aarti Drugs with a target price of Rs.1031.The stock was quoting at 699Rs/share then.
So in one year the target price has gone up by 4x !!
Forecasting Folly, anyone ?