Three-digit returns! Small in size, big in gains

Tags: Stock Market
Three-digit returns! Small in size, big in gains
The global slowdown and fast failing economies have troubled investors on the Street for the whole of past year, yet a few mid-cap stocks from sectors such as healthcare, cement, and spirits managed to beat the downturn and emerge big winners. Some 17 mid-cap companies have made investors richer by more than 100 per cent over the past one year since last November, when the 30-stock Sensex has managed to give only a marginal 7 per cent return.

Among them, stocks like Tuni Textile Mills, Vikas WSP and Wockhardt have given 677 per cent, 354 per cent and 255 per cent returns, respectively, data provided by Capitaline showed. Of the top 17 companies, some of the best performers were from the cement sector followed by the pharmaceutical sector and FMCG stocks, especially breweries.

Among the cement stocks, JK Lakshmi Cement gave 228 per cent returns, Shree Cement 128 per cent while Madras Cement gained as much as 115 per cent, highlighting the brilliance of a few individual stocks and sectors that bucked the trend of the broader market.

G Chokalingam, executive director and chief investment officer of Centrum Wealth Management, said irrespective of the macro-economic situation, individual mid-cap stocks always shown. After the Lehman Brothers bankruptcy and the 2008 meltdown, many stocks had given more than 100 per cent returns. “India’s economy is mostly driven by robust domestic demand. The over-the-cloud returns from cement, healthcare and FMCG stocks are results of strong demand for these products in the domestic market. Not many stocks have been affected by the interest rate cycle,” he said.

Market experts believe that mid-cap stocks have traditionally been wealth creators for investors, while large-caps are used as wealth maintenance stocks. Investors should be cautious in choosing stocks, especially where the story has not played yet. One should also keep in mind that wealth is not created by betting on market, but by betting on the right themes.

AK Prabhakar, senior vice-president and head of retail research at Anand Rathi Securities, said cement stocks were the outperformers, as there is a huge demand for the product, barring south India. “The utilisation has been very high for cement companies and margins have improved considerably as there has been a pickup in the real estate, housing and infrastructure projects off late. Also, there has not been substantial capacity addition over the past two to three years. Whatever additions have happened was planned long back,” Prabhakar said.

Experts say stocks with high return on equity (ROE) of 30 to 40 per cent will continue to perform well in the coming quarters as well. There will be individual brilliance that would continue to brighten up the Street in the coming months, even if the overall market remains flat.

Chokalingam said there would be silent wealth creators among deep-value mid-cap stocks, but overall the market will remain subdued, as a lot would depend on the macro-economic climate.

AK Prabhakar of Anand Rathi concurs that the inaction of the government over the past eight months has created so much stress that it cannot be recovered in the next three years. “Reforms have to be aggressive. If the government reneges by reversing the six LPG cylinders policy to nine cylinders, it would tantamount to rolling back the reforms and increasing the stress on the economy again. Also, there are clear indications of mid-term elections as most political parties have started setting their agenda for elections, which are due in 2014. If the government loses a no-confidence motion as is expected or is not able to get support from the opposition for most of the reforms, then there is every likelihood that ratings agencies may even downgrade India,” Prabhakar added. zz


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