Though the BSE Sensex is down 20 per cent since its peak in January 2008, more than half of the 30 companies that are a part of the index have given a positive return in the range of three to 192 per cent. The average return of the 16 outperformers in the Sensex is 75 per cent, against the average fall of 38 per cent for the remaining stocks. What’s more? If experts are to be believed, the trend is unlikely to change, given the present environment, locally as well as globally. The year ahead, thus, will remain a stock pickers’ market. Among the Sensex stocks that experts believe will outperform include Hindustan Unilever, Tata Consultancy Services (TCS), Reliance Industries, Bajaj Auto and ITC.
Choose your stocks well
Despite the heavy correction in the Sensex and broader concerns over markets, 16 of the 30 stocks in the index have delivered astonishing returns. This clearly indicates the stock specific approach has worked well, a trend that experts believe will continue.
“Choose your stocks well. Look for individual stock opportunities, as it is going to be a stock-specific market,” says Rajen Shah, chief investment officer at Angel Broking. Within the Sensex, Shah would want to put money in Reliance Industries, given the stock’s underperformance and a contrarian call. He says the company has bought 30 million shares under the buyback programme at around Rs 700 apiece, which is more than enough to speak about the management’s confidence.
| SENSEX: GAINERS & LOSERS | |||
| Share price in Rs | 1/10/2008 | 19/06/2012 | % change |
| Hero MotoCorp | 686.80 | 2007.20 | 192.3 |
| Sun Pharma | 218.70 | 598.30 | 173.6 |
| TCS | 487.35 | 1273.80 | 161.4 |
| ITC | 109.85 | 249.10 | 126.8 |
| HUL | 228.80 | 448.90 | 96.2 |
| M&M | 401.57 | 695.00 | 73.1 |
| Dr Reddys | 690.45 | 1154.80 | 67.3 |
| Tata Motors | 145.55 | 238.30 | 63.7 |
| HDFC Bank | 343.98 | 537.10 | 56.1 |
| Infosys | 1602.20 | 2478.55 | 54.7 |
| Cipla | 202.15 | 309.75 | 53.2 |
| Wipro | 292.56 | 399.25 | 36.5 |
| Maruti Suzuki | 907.65 | 1090.80 | 20.2 |
| Coal India | 287.70 | 343.95 | 19.6 |
| GAIL | 326.66 | 336.15 | 2.9 |
| HDFC | 625.79 | 643.00 | 2.8 |
| SBI | 2274.18 | 2103.10 | -7.5 |
| Jindal Steel | 503.71 | 427.80 | -15.1 |
| ONGC | 323.05 | 267.60 | -17.2 |
| Hindalco | 183.72 | 122.70 | -33.2 |
| Bharti Airtel | 482.97 | 314.75 | -34.8 |
| L&T | 2103.60 | 1329.95 | -36.8 |
| Bajaj Auto | 2500.00 | 1537.55 | -38.5 |
| ICICI Bank | 1356.70 | 826.40 | -39.1 |
| Tata Power | 149.81 | 91.05 | -39.2 |
| NTPC | 266.10 | 149.90 | -43.7 |
| Tata Steel | 854.10 | 420.20 | -50.8 |
| Reliance Ind | 1513.52 | 737.25 | -51.3 |
| BHEL | 487.19 | 211.55 | -56.6 |
| Sterlite Ind | 253.78 | 94.35 | -62.8 |
| Sensex had scaled to a high on January 10, 2008 Data compiled by BS Research Bureau | |||
A reason most analysts favour the stock-specific approach is they believe markets are going to remain in a range. For instance, since July 2009, the Nifty has ranged 4,500-6,300 but is still hovering around 5,000 levels. The range-bound trend is expected to continue for some more time before clarity emerges, in terms of improvement in domestic economic fundamentals and the global situation. Experts say upsides are capped because of prevailing risks and the downside is protected due to valuations, which turn compelling and have led to buying at lower levels.
“The range-bound market is irritating the investors and will continue to irritate. There is no point focusing only on the index. Investors need to be stock-specific in this market because it is only the 15-20 stocks which have been able to outperform the broader markets,” says A K Prabhakar, senior vice-president, equity research, Anand Rathi Financial Services.
Prabhakar intends to play stocks linked with rural growth, as he believes the recent increase in the minimum support price for various crops and expectations of a better monsoon could help some of these companies like Hindustan Unilever and Bajaj Auto. In fact, Hindustan Unilever has already reported strong advance tax numbers. In the case of Bajaj Auto, which also derives a reasonable amount of revenue from export markets, Prabhakar believes the company could benefit as a result of a weaker rupee. And, for the same reasons (weak rupee), TCS should also continue to do well, reflected in the company management’s confidence regarding growth.
Bias for defensives to continue
After 2010, in the light of global issues and deteriorating domestic economic fundamentals, most money managers had titled their portfolios in favour of defensives. This is also a reason that defensives, as a theme, has worked wonderfully for investors. Even after the correction in the Sensex, companies like Hero MotoCorp, Sun Pharma, TCS, Hindustan Unilever, ITC and Dr Reddy’s have delivered strong returns.
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“I think, it is only after the major correction we could see investors moving from defensives to aggressive or high-beta sectors and stocks,” says Prabhakar. Until then, most experts are of the view that the bias for defensive stocks will continue, as markets will wait for clear signals regarding a cut in interest rates and improvement in economic environment. Typically, when the market risk is low, high-beta stocks tend to perform well. A beta of one indicates a particular stock would move in equal proportion to the market/index. A high-beta stock usually moves by a larger margin (either ways) as compared to the market.
Interest rate-sensitive sectors, which are linked to the investment cycle, and metals are among the potential high-beta themes. In 2009, the Sensex corrected to around 8,000 levels and rebounded to around 21,000 by November 2010, an increase of 162 per cent. The biggest gainers were rate-sensitive stocks like Tata Motors, Bajaj Auto, M&M, ICICI Bank, and some of the metal counters like Tata Steel and Hindalco. In contrast to this, stocks like Cipla, Hindustan Unilever, Bharti Airtel, NTPC and ITC were among the least gainers.