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How the experts got it wrong

Forecasting is a science. But in uncertain times, it becomes an art. Unprecedented turn of events in the past 12 months has made experts look like tyros.

Print Edition: October 2, 2008

Forecasting is a science. But in uncertain times, it becomes an art. We know how the small investor often gets it wrong. How the novice misses the woods for the trees and ends up making a loss. But the unprecedented turn of events in the past 12 months has made even experts look like tyros. Brokerages, the so-called market analysts whom even seasoned players look up to for advice, were completely off the mark in their estimates of stock prices and the economy. Of course, they were not alone. Practically everyone was taken by surprise. Money Today looks at some of the predictions by brokerage houses on select sectors and other macro-economic indicators, and how they missed the target.

REAL ESTATE

Demand has fallen because the rise in home loan interest rates has made property an unviable investment

Emkay research forecast on 22 April 2008: “Large realty companies have acquired land aggressively in the past two years at low cost. They have sufficient land bank to ensure strong growth for 8-10 years.”
What went wrong:
Crude went up from $105/barrel in April to $135 in June. Inflation and interest rates shot up, which hit the demand for housing.

Recommendations
Stock
Price (Rs)Variation (%)
ThenTargetCurrentFrom thenFrom target
DLF6511,115486-25.3-56.4
Unitech268360159-40.7-55.8
HDIL7181,491370*-48.5-75.2
Orbit Corp4511,179291-35.5-75.3
Sobha Developers5841,408274-53.1
-80.5
Current prices as on 11 September 2008
*Adjusted for bonus

 

BANKING

A flurry of hikes in CRR and repo rates has hit the bottom line of banks. Rising interest rates have slowed down credit offtake

Religare forecast on 4 Jan 2008: “Interest rates appear to have peaked out and the RBI will begin to cut rates in the next three to four months. This will help increase the growth in credit offtake. We believe that stronger PSU banks will soon witness a re-rating.”

What went wrong: What was being perceived as the end of interest rate hikes was actually the beginning. Most frontline banking stocks have almost halved in value since the beginning of the year.

Recommendations
Stock
Price (Rs)Variation (%)
ThenTargetCurrentFrom thenFrom target
Indian Bank212257135-36.4-47.5
IOB201241101-49.8-58.1
Allahabad Bank138
16763.85-53.7-61.8

 

HOSPITALITY

Despite high demand and impressive growth plans, hotel stocks have suffered because of the overall economic downturn.

India Infoline forecast on 14 Aug 2007: “Sustained economic growth and lack of supply in the past three years have pushed up average room rents at premium hotels. Going forward, we expect demand to remain robust on the back of a healthy economic growth.”

What went wrong: The rise in air fares and the prospect of an economic downturn led to a slowdown in travel. Hotel stocks have underperformed the broad market in the past year. Bluechips are trading at 52-week lows.

Recommendations
StockPrice (Rs)Variation (%)
ThenTargetCurrentFrom thenFrom target
Indian Hotels14016476.85-45.1-53.1
Hotel Leela46.55633.95-26.9-39.4
Taj GVK155
186
89.65-42.2-51.8

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