The Ratings Game

Equity analysts make recommendations on shares—typically, a “buy", “hold" or “sell"—to their clients based on a company’s expected earnings performance, its prevailing stock price as well as market conditions. For a retail investor, the ratings can be a good starting point, though some caveats need to be considered. The analysts may be part of investment banks that have business deals with the firms they are rating—the so-called Chinese walls between the research and banking divisions aren’t always non-porous and there could be conflict of interests. Also, the ratings are not easily accessible. ‘Bloomberg’ compiles analyst ratings and assigns a number between 1 and 5 to each rating, where 5 is the highest (typically, a “buy") and 1 the lowest (often, a “sell") and arrives at an average for each stock by adding the numbers assigned and dividing the total by the number of recommendations in the last 12 months. The target price is the average of the price predicted by analysts for the next 6-18 months. Mint presents Bloomberg’s rating of the top 500 stocks on the BSE as of 11 July