You often come across research reports made by analysts with various terminologies such as overweight, underweight. Here is what some of them mean.
BUY/ACCUMULATE, SELL/ BOOK PROFITS:
These recommendations tell you whether analysts expect the stock price to rise, fall or trade in a range from its current price or on the day the report is published. If analysts expect a company's performance in the near future to be good, they put a buy/accumulate recommendation. On the other hand, if they expect the future financials to be bad, the recommendation would be to sell the stock. Many a time, a sell recommendation could also indicate that they expect the share price to drop sharply and, hence, are advising you to sell the stock. Similarly, in the case of a buy recommendation, it could indicate the analysts expect the share price to move up sharply.
Often, analysts suggest investors to "book profits" instead of selling a stock completely. This happens when they find the stock has run up substantially after a buy recommendation at lower levels. Investors earn a profit when shares are sold at that level.
OVERWEIGHT/OUTPERFORMER:
This indicates analysts consider the stock quite attractive. It conveys that the analysts are positive about the company. So, if an overweight rating is assigned to a stock, it means an investor should hold proportionately more than the benchmark weight of a certain asset. If say, for example, TCS is given an overweight rating, it means in the analyst's opinion the stock offers more value for money than other stocks in the sector. So, if the weight of TCS in Nifty is 6.37%, and the analyst is overweight, it means you should hold more than 6.37% of TCS in your portfolio.
UNDERWEIGHT/UNDERPERFORMER:
Underweight indicates that an investor should hold proportionately lower than the benchmark weight of a certain asset.
So if your advisor tells you to be underweight on say Reliance, he/she means your portfolio should hold less of Reliance than its weight in the index. Hence, if your advisor is underweight on Reliance and its value in the Nifty is 9%, you should hold less than 9% of Reliance in your portfolio.
