My yahoo mail account gleefully popped out the latest ICICI Direct recommendation list. (here) Over time I've observed that the ICICI Direct stock picks are pretty efficient and 80% of the times, give the right result (read: positive). Since some of these recommendations were given in Feb and Mar, I updated the prices and sorted the list to identify their best picks for mid-term investing (12-15 months). The new chart is enclosed below.
Click on the picture to enlarge
The column in the extreme right indicates what happens if you were to put up 10,000 rupees against each stock and follow the published time frame of 12-15 months. If the picks were right then you would end with a return of 48.7%.
This allows room for some sensitivity. Lets assume that 70% of the picks will be right i.e. when the price reaches the target, we will sell the stock at that price. Correspondingly, for the 30% picks that'll go wrong, lets assume zero price appreciation over time.
Case 1: Our top 3 stocks (sorted by appreciation) go wrong ... In this case, our 15-month return will only be 24.4%
Case 2: And if our bottom 3 stocks (sorted by appreciation) go wrong ... our 15-month return will be 42.7%
Hence, our range of 15-month returns on the basis of ICICI Direct recommendations lies between 24.4% to 42.7%.
Instead, had we just picked the top 5 stocks from this list, our returns estimate jumps up to 69.0%. Correspondingly, the returns range would hover between 34.1% and 48.6% on the basis of a 60:40 right-wrong ratio. An average return of 40% on the Indian equity market factoring a 30% wrongness factor isn't bad, eh?
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