This report is for informational purposes only and is not be construed as investment advice.
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Category: Sellside Research
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DLF and Macquarie
Way back in August,I had blogged about the nonsensical research reports put out by brokerages.
One of them was a Buy Call on DLF by Macquarie with a price target of 250.Subsequently, the Robert Vadra scam has burst and the company is in the news for all the wrong reasons.
At that time, I had written
Can DLF hit 250 in the short term?Sure, in the Indian stock markets, anything is possible.But is it the kind of stock that one expects a reputed brokerage house to recommend for “investing”?Hell, no !!
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Are research reports dead?
Came across an interesting post on research reports by Tom Brakke.
Lots of the points raised by him are true for the Indian context as well:
Lack of credibility : Nearly all the research reports out there are put out by sell side brokerages and investment houses.These reports fail utterly in terms of recommendations, targets etc.Not surprising considering the “Risk On, Risk Off” environment that we live in.When I used to put up research reports on the site, I used to get a lot of abuse from my readers.One memorable comment went “Why are you putting puddu reports by puddu brokers ?!!”
Lack of expertise: The smartest guys don’t make their research reports public.The ones that do have often very little expertise in the industry/company that they track.Very often, they have a complete lack of understanding of the broader economic forces at work.Pick up the reports of any of the power companies in the last one year and you will know what I mean.Many times the recommendations follow the stock price instead of the other way around.
Whats the point?: In the US, there are many boutique research houses famed for their independent research.Some of their analysts are almost like rock stars.Here, one would be hard pressed to name even one good one.Does anyone know a good analyst who is the go-to guy on Reliance or Coal India or any other big cap?Indians seem to take Ace Greenberg’s advice to heart “Who needs a research analyst?In a bull market, you don’t need them and in a bear market, following their advice will kill you !”
Used as a marketing gimmick Most of the business channels faithfully report any upgrade/downgrade of stocks by brokerages, especially the foreign ones.But the market impact of these is minimal.The only use of these announcements seem to be increasing the brand awareness of the brokerages themselves.
Well, so what is an average investor to do?The answer is provided by Charlie Munger “Read, Read, Read”
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What are they smoking?
When foreign brokerage houses entered India, many investors felt that finally they would get an opportunity to have world class research reports. But the experience has been a painful one.
On June 29, 2011, Nomura Securites came out with a buy call on KS Oils with a target of Rs.45.KS Oils was trading around Rs.22 then.So the price target was a whopping 100% above the then prevailing price.Subsequently, the scandal about KS Oils broke and now it is trading at around Rs. 5 per share !
Now, you have the good people of Macquarie have put an Outperform rating on DLF with a price target of Rs.250. DLF is known for its opaque accounting practices and poor corporate governance issues.Veritas in it’s detailed report has put a price value of Rs.100 on the stock.What is interesting is that Macquarie had slammed HDFC for its accounting practices, but at the same time has given a clean chit to DLF for the same.
Can DLF hit 250 in the short term?Sure, in the Indian stock markets, anything is possible.But is it the kind of stock that one expects a reputed brokerage house to recommend for “investing”?Hell, no !!
Makes one wonder, what are these analysts smoking?