The power of 'Buy' or 'Sell': How brokerage ratings impact stock prices?

The opinion of a single word from a global brokerage firm — 'Buy', 'Hold', or 'Sell' — can at times shift billions of dollars in market value. Brokerage ratings have traditionally been the key determinants of investor mood, dictating short-term price action and, in most instances, even deciding on the direction of a whole sector.

How brokerage decide a stock rating?

When a broker such as Morgan Stanley or Goldman Sachs comes out with a research note rating a stock, institutional investors tend to respond immediately.

Add Zee Business as a Preferred Source

The reports are compiled after researching the public financial statements, attending conference calls and speaking with managers and clients of the company.

Having gathered all this information, the financial analysts decide on whether the stock is a buy, hold or sell.

In liquid, large-cap stocks, such calls can generate instant reactions — a jump in trading volume, price jumps, and occasionally, herding behaviour by small investors who take the rating as validation of the company's health.

The effect is strongest when the brokerage firm enjoys a great track record or has deep credibility within a specific sector.

On the other hand, a downgrade from a respected firm can cause panic selling, especially when accompanied by a sharp cut in the target price.

Ratings are only assumptions:

However, brokerage ratings are not cent per cent reliable and caution should be maintained. Analysts work with assumptions, and markets often tend to move differently than projected. Many seasoned investors now treat these ratings as one input among many.

Lately, brokers' call power has increased, with the evolution of social media and financial news platforms.

A 'Buy' recommendation made in the morning can turn into a full-blown rally in the stock market by afternoon. And yet the wisest investors recall that even the strongest 'buy' call is nothing more than a signal — and not a guarantee.

However, SEBI rules do obligate brokerages to reveal conflicts of interest — like whether they or their families own positions in the company — providing an extra layer of disclosure.

Recent instances of brokerages that turned the stock around:

IndusInd Bank upgraded by Nomura

Nomura upgraded its coverage to IndusInd Bank in June 2025 from neutral to buy, upping the target price from Rs 700 to Rs 1,050.

The upgradation was due to its renewed governance promise, tidying up accounting troubles, and high hopes for improved financials.

The moment the upgrade became public, the stock rose by about 4 to 5 per cent on that trading day, marking an expression of instant investor confidence.