Close to 300 of the 450 stocks on the BSE 500 index that are tracked by analysts have seen sharp target price cuts since September 21, when Infrastructure Leasing & Financial Services (IL&FS) defaulted on payments. According to Bloomberg consensus estimates, stocks such as Tata Motors, Dish TVNSE 1.06 %, HPCL, Jindal Stainless, Yes BankNSE 0.70 %, BPCL and Piramal Enterprises have seen a 35-45 per cent reduction in their one-year target price by brokerages.
Analysts had enough reasons to believe that stock markets were overvalued since the beginning of the year as earnings growth was subdued, but the price-earnings (PE) multiples of Indian indices stayed put at alltime highs. Most midcap and smallcap stocks were trading at PEs of above 50. That buoyancy ended as the market collapsed in the wake of the liquidity crisis that gripped non-banking finance companies (NBFCs), leading to a cut in valuation premiums.