Mazagon Dock shares in focus after ICICI Sec’s 77% downside call; Deepak Shenoy asks “What do you do when…”

The recent report by ICICI Securities predicting a significant 77% downside in Mazagon Dock Shipbuilders share price has sparked some flack on social media. On August 16, the brokerage house released a research report, giving a ‘Sell’ call on the multibagger PSU defence stock, citing stretched valuations. The report set a target price of ₹900 per share, a stark downside to the current market price of around ₹4,400.

Deepak Shenoy, CEO of Capitalmind, highlighted the brokerage's track record in a post on X (formerly Twitter), pointing out that ICICI Securities had released four reports over the past year, each predicting a 60%-77% downside for Mazagon Dock Shipbuilders shares. However, these predictions have been consistently proven wrong as the stock has continued its upward trend.

“What do you do when you own a stock and someone sends you a SELL report with “77% downside”? You check to see what they've said earlier. Case in point: Mazagon Dock (we own this) ICICI Sec puts out a sell rating saying boss stock will fall to 1165 (77% down from 5000),” Shenoy said in a post on X.

He further noted that in May 2024, when Mazagon Dock Shipbuilders' share price was trading around ₹3,300, ICICI Securities issued a sell rating with a target price of ₹900, predicting a 73% downside. Despite this, the stock price has risen by 50% since then.

In November 2023, when the PSU stock was priced at ₹2,000, the brokerage predicted a 60% drop. Yet, the stock is currently more than 140% higher. Similarly, in July 2023, when Mazagon Dock Shipbuilders' price was ₹1,500, the brokerage estimated a 60% fall to ₹600. The stock has since tripled in value over the course of a year.

What should you do?

Shenoy emphasized that while being wrong in market predictions is not uncommon, the real issue lies in blindly following such reports without considering the broader context.

“There’s nothing wrong with being wrong, and then the idea could be that eventually they will be right. Perhaps they will. But that's not the point. The point is that opportunities can be lost if you believe in reports just as is. A look at the history of the “predictor” gives you an idea of how much credence to give to the report itself,” Shenoy commented.

He said that his preferred strategy is to react to market movements rather than trying to predict them

“And my favourite thing is: don't predict, respond. We've scaled down the position only recently, but rode it all the way with a very deep trailing stop, even though it appears that the valuation is stretched. Have learnt the hard way to not sell on imaginations of valuation alone,” he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.