The harder stocks fell, the higher they bounced back

If you were allowed to travel back in time to March 9 this year, when the Sensex was poised at 8100 levels, which stocks would you have bet on? Analysis shows that you would have reaped the best rewards had you been brave-hearted enough to buy those that were the most out-of-favour at that point in time. The realty sector, which was down 91 per cent from its January 2008 peak, has been the best sector performer in the post-March rally.

Small-cap stocks have been the best market cap segment to be in. And if you had built a portfolio of stocks that had seen a value erosion of 90 per cent or more in March, you would actually have got five times your money in six months! In a nutshell, ‘What fell the most must rise the most’ is a maxim that has held well in this rally. Does this experience hold any lessons for investors? Well, for starters, here’s an analysis of the stocks that led to this rally.

Sectors at the forefront
Returns on the BSE sectoral indices suggest that investors would have been able to outperform the broader market by betting on sectors that were battered the most as the market plunged to its March lows. The clear frontrunner in this rally is the realty sector which, between March 2009 and now, has delivered a staggering 230 per cent return, surpassing other sectoral indices (100-150 per cent return).

The realty sector was singled out for brutal treatment in the market fall; with the BSE Realty index losing 91 per cent in value between January 2008 and March 2009. However, few investors may actually have taken advantage of this opportunity as there was barely any sign of a recovery in the realty sector’s prospects in March. . Signs of recovery in the sector’s fundamentals are just beginning to emerge, and mainly for the larger players.

It is, however, important to note that had you invested in realty stocks at their peak, you would still be staring at sizeable erosion in your wealth. If betting on realty was a difficult call to make, putting money on metals or capital goods, the other two most beaten down sectors in March 2009, would have paid off well too, though not as handsomely as realty. While the BSE Metal Index is up 184 per cent from its March low, the BSE Capital Goods index is up 140 per cent.

The two sectors that have done well in this rally without suffering too much in the previous fall are IT and automobiles. The BSE Auto index is up 136 per cent, after taking just a 55 per cent knock in the 2008 correction.

The BSE IT index too has more than doubled from its lows, after losing 56 per cent from its peak.

Small-caps race ahead

It is not just in terms of sector preferences that down-and-out stocks led this rally. Small and mid-cap stocks that fell more than their blue-chip counterparts during the meltdown too outperformed in the rally so far. Consider this.

With a near 80 per cent fall, the BSE Small-Cap Index lagged the BSE Midcap (down 75 per cent) as well as the Sensex (down 62 per cent). In the bounce-back, the situation has simply been turned on its head. While the BSE Sensex delivered a 95 per cent gain from its low on March 9, the BSE Small-cap index returned 144 per cent and the BSE Midcap Index 129 per cent.

The out-performance of small and mid-cap stocks has been a clear outcome of their bargain valuations during the lows. The BSE Midcap index traded at a price earnings multiple of just nine times trailing earnings and the BSE Small-Cap index traded at less six times during the March 2009 lows. A reversal in the interest rate cycle, with rates beginning to trend down, may have supported the re-rating of these stocks, as has the better-than-expected sales growth of the mid-sized companies in the June quarter.

However, investors need to note that while betting on small or mid-cap stocks at market lows may pay off eventually, taking bets on them when markets peak can be extremely injurious to their wealth!

Stocks that led the rally
The above trends prove that investors who picked the most battered sectors and classes of stocks would have reaped the most rewards in the recent rally. But what about individual stocks? Well, the pattern is only repeated.

If an investor had completely ignored all fundamental or sector considerations and blindly picked up the ones which fell more than 90 per cent from their peaks on March 9 2009, his/her portfolio would today have risen by 366 per cent from its March 9 value! The investor would have clearly outperformed the Sensex, which made a 93 per cent return in this period.

The multi-baggers of this rally were the mid- and small-cap players from the realty and construction space — Madhucon Projects, Unity Infra, Ahluwalia Contracts, Peninsula Land, HDIL, Marg Constructions and Orbit Corporation. All these stocks lost over 85 per cent of their value in the market crash between January 2008 and March 2009; but turned around to give a stupendous 300-400 per cent return since.

One surprising trend that emerges is that the multi-baggers in this rally did not attract significant FII buying. Though FII buying was clearly the trigger for this rally, stocks which rose manifold were not the ones where FIIs pegged up their stakes to the maximum.

In fact, stocks such as McNally Bharat (up fivefold), Madhucon Projects (up fourfold), JSW Holdings (up fourfold) and Unity Infraprojects (up fourfold) were among the top gainers, despite FIIs actually trimming their stakes in these companies in the March-June 2009 quarter.

With the rally driven mainly by hopes of a recovery in earnings and the prospect of a recovery already built into current valuations, from here on market moves may become more selective.

Investors may now need to keep watch on the new sector leaders that are emerging in the recent recovery. If one looks at the sectors that have already moved past January 2008 highs, it appears to be IT, automobiles and FMCGs.

IT, which was beaten down on concerns of the US economy’s poor health and was languishing even after many sectors recovered past the March low, has played catch-up, as recovery signs emerged in the US. And as far as the auto segment is concerned, the recovery started much ahead; it bottomed out in the October trough and started recovering before early 2009.

Hero Honda Motor and Maruti Suzuki are at significantly higher levels than in 2008 peak. Select scrips from commodities — sugar, cement; pharmaceuticals, FMCG too — are riding above the 2008 high. Shree Cement, EID Parry, Godrej Consumer and Cadila Healthcare are among such stocks.

Source: TheHinduBusinessLine

Sensex to touch 50,000 in 7 yrs: Morgan Stanley

Morgan Stanley on Thursday said that sensex could touch 50,000 mark in seven years from current levels , if the assumptions made are optimistic.

"One way of looking at market valuations is to find out the number of years it could take the market to reach a certain level. In our base case, using our residual income model, the BSE sensex (used as a market proxy) could take about nine years to breach 50,000 from its current level.

If the assumptions are made optimistic, the period to 50K shrinks to seven years," analysts Ridham Desai and Sheela Rathi said on Thursday .

Source: EconomicTimes

Average returns of Sensex are highest on Fridays

Last October, investors witnessed two of the biggest falls in the history of sensex — both on Fridays. But a Friday isn't all about fall. Did you know the index's best 'average daily gains' actually come on the last day of the trading week?

Data shows that average daily returns for sensex is not only the highest on Fridays but nearly two to four times more than on days such as Tuesday, Thursday or even Monday. This is based on an analysis of daily gains (in percentage terms) since September 1, 2003 when sensex was first calculated on freefloat market capitalisation method. In fact, when it comes to the top 30 daily gains for the 30-share benchmark in the last five years, Friday features the highest number of times (7), that is nearly 1 out of 4 occurrences.

So, what drives this Friday effect? "(This) data is driven by levels of market activity rather than anything else i.e. trading volumes tend to be higher in the second half of the week (Wed-Fri ) and that results in more deals being closed on such days. Brokerages like to close trades before the week ends because if they wait for the following week the trade sometimes gets away," said Saurabh Mukherjea, India head of Noble Group, a British investment bank.

Experienced market participants have had memorable Fridays. Sensex gained over 1,100 points on January 25, 2008, another 750 points on October 31, 2008 and a half a dozen of occurrences when sensex rose 400-puls points in the last four years. Average daily returns for sensex on Friday are the highest at 0.20%, followed by Wednesday (0.12%), Tuesday (0.11%), Monday (0.06%) and Thursday comes last returning a mere (0.05%), data shows.

Thursday's performance has not surprised market experts . In last 4 years, investors have seen sensex lose between 400-800 points on at least 10 occasions on a Thursday. "One of the reasons that can be attributed to lower returns on Thursday can be impact of F&O Expiry which is normally on the last Thursday on the month," said Chetan Majithia, head (Equities) at Crisil.

Source: EconomicTimes

Gold surges to near $1,000; touches new record in India

Gold prices surged to near 1,000 dollar level in global markets on Friday on investment buying while touching an all-time high in India on festive demand.

Gold in the US futures market reached 999.50 dollar last night, the highest price since Feb 23 helped by lower equities as sluggish stock markets diverted funds to the bullion as a safe haven. The MSCI World Index of shares is down 2.4 per cent this week, heading for its first decline in eight weeks.

The metal also gained as investors sought a haven on concern that a global recovery might be slower than expected. The US jobless rate in August jumped to 9.7 per cent, the highest since 1983.

A firming trend in the US markets, which normally set price trend in Asian region including India, drove the gold prices in India to its record high levels amid brisk buying by stockists and jewellery makers for the ensuing marriage and festival season.

The bullion in the national capital today shot up to an all-time high of nearly Rs 16,000 per 10 gram on last minute heavy purchases by traders to build up stocks before the start of the inauspicious 'Sharad' tomorrow.

The surge in the gold rates was led by heavy demand from jewellers and stockists before Shradh, a inauspicious fortnight for making any fresh purchases, marketmen said.

"We have plenty of orders for jewellery in hand and have to purchase it before the fortnight of Sharads begin," said Delhi-based jeweller Rakesh Anand.

Further the uncertainty in the stocks, which remained more volatile in last one-week, left little option for the investors but to invest in bullion as a safe haven.

In the last one week the Bombay Stock Exchange index Sensex fell for four consecutive days, but gained 290.79 points today at 15,689.12, the last trading day of the week.

Silver ready surged by Rs 700 to Rs 25,300 per kg and weekly-based delivery by Rs 560 to Rs 25,700 per kg.

Standard gold and ornaments shot up by Rs 200 each to Rs 15,900 and Rs 15,750 per 10 gram respectively. Sovereign also rose to all-time high by gaining Rs 100 to Rs 12,800 per piece of eight gram.

Source: EconomicTimes

IFCI has a short-term target of Rs 71: Thacker

Thacker told CNBC-TV18, "They have been buzzing around well. Not only the financials, but the public sector undertaking (PSU) banks especially the smaller ones also seem to have joined the rally. I like IFCI a lot in the sense that we have seen since the start of the rally in the month of March the stock has made a high at Rs 57 in the month of June and few days back it recorded a high of around Rs 57."

He further added, "Today, it is trading above the psychological mark since it’s a weekend closing, weekly closing for the stock and its closing at new highs for the upmove. So momentum should be good for the stock, we have seen intraday excellent addition in the open interest; Rs 70 is the short-term target we are looking for the stock."

Source: Moneycontrol

Subscribe to Oil India IPO: Brokerages' unanimous view

Oil India, the second largest oil and gas company in India, will come out with an initial public offering (IPO) of 26,449,982 equity shares of face value Rs 10 each. Its issue price has been fixed at Rs 950-1050 per equity share and it will raise around Rs 2,512.75-2,777.25 crore.

The issue comprises a net issue to the public of 24,045,438 equity shares and a reservation of 2,404,544 equity shares for subscription by eligible employees, at the issue price. The issue shall constitute 11% of the fully diluted post-issue capital of the company.

Research and broking firms have recommended investors to subscribe to the issue.

Source: Moneycontrol

Bajaj Auto Finance (Rs 224.5): Buy

We recommend a buy in Bajaj Auto Finance from a short-term horizon. It is evident from the charts that the stock has been on an intermediate-term uptrend, forming higher peaks and troughs since March low of Rs 43. In mid-July, the stock took support around Rs 140 and resumed its uptrend. It is trading well above 21- and 50-day moving averages. On September 1, the stock jumped 8 per cent accompanied with good volume, penetrating the short-term resistance at Rs 215. This break through has reinforced the stock’s bullish momentum. Both the daily as well as weekly relative strength indices are featuring in the bullish zone. The daily moving average convergence and divergence is signalling a buy. Our short-term outlook is bullish on the stock. We anticipate the uptrend to continue until it hits our price target of Rs 247. Traders with a short-term perspective can buy the stock while maintaining a stop-loss at Rs 212.

Source: thehindubusinessline