Over the past three months, the Indian stock markets have outpaced many other markets after almost a year of rangebound movement. Many stocks are now trading at their 52-week high levels which would mean that investors may find it more challenging to hunt for stocks that still hold the potential to offer significant returns.
ET Intelligence Group has identified a few companies which could still be candidates for investment despite clocking huge returns over the past 18 months. Our focus is on those stocks, which gained immensely over this period. While there are hundreds of such scrips, not all such stocks fit the bill when it comes to long-term investments.
For instance, of the 300 companies that outperformed the benchmark Sensex during the past 18 months, 10 companies reported net losses in FY10. Besides, over 50 companies currently trade at an earnings multiple of more than 30, which is way higher than the Sensex P/E of over 25. This compels investors to be extra cautious while looking for stocks, which are still worth investing. ETIG has drawn up a list of companies that are likely to outperform the broader markets in the future as well.
THE METHODOLOGY
We started by selecting companies, which had reported revenues of at least `500 crore in FY10. This cut-off helped eliminate companies, which have miniscule operations and could attract speculative interest. Besides, small size firms are far more vulnerable during economic downturns than their bigger counterparts.
After filtering out such smaller companies, we then considered the stock prices of the remaining 700 odd companies on two occasions — one on March 9, 2009, just before the Sensex started a fresh upward movement and the other one on October 5, 2010, which captures the current bull-run in the domestic equities. Using these two price points, we calculated the percentage change in stock prices or the returns earned by these companies. During this period, the Sensex rose by over two-and-a-half times.
From the sample, we selected only those companies, which outperformed the Sensex during the period. There were close to 360 companies which we analysed to identify those stocks which look promising. There are a handful of companies that still have some steam left in them. However, identifying the right time to buy into stocks is as important as analysing the business fundamentals of a company.
THE MOVERS AND SHAKERS
Many of the companies that feature in the list had suffered losses during the previous year. This could be one reason why their stock prices had plummeted in 2009 apart from the slowdown in the broader stock market. As a result, these stocks corrected, once the economic rebound too place in the early part of FY10. It is important to scout for companies, which have a consistent track record.
For instance, companies in the consumer segment have been able to outperform all other sectors. With the growing consumer demand, this is likely to hold true even in the coming quarters. VIP Industries tops our list. Its stock price rose 22-fold since March 2009. Auto company Force Motors and finance company Bajaj Finance followed in that order. (For the full list, log on to www.etintelligence.com) Auto and FMCG companies dominate our list.
One out of every four companies in the top 100 was from these sectors. Nearly 30% of the companies were from sectors such as construction, banking and finance, IT and textiles.
ET Intelligence Group has identified a few companies which could still be candidates for investment despite clocking huge returns over the past 18 months. Our focus is on those stocks, which gained immensely over this period. While there are hundreds of such scrips, not all such stocks fit the bill when it comes to long-term investments.
For instance, of the 300 companies that outperformed the benchmark Sensex during the past 18 months, 10 companies reported net losses in FY10. Besides, over 50 companies currently trade at an earnings multiple of more than 30, which is way higher than the Sensex P/E of over 25. This compels investors to be extra cautious while looking for stocks, which are still worth investing. ETIG has drawn up a list of companies that are likely to outperform the broader markets in the future as well.
THE METHODOLOGY
We started by selecting companies, which had reported revenues of at least `500 crore in FY10. This cut-off helped eliminate companies, which have miniscule operations and could attract speculative interest. Besides, small size firms are far more vulnerable during economic downturns than their bigger counterparts.
After filtering out such smaller companies, we then considered the stock prices of the remaining 700 odd companies on two occasions — one on March 9, 2009, just before the Sensex started a fresh upward movement and the other one on October 5, 2010, which captures the current bull-run in the domestic equities. Using these two price points, we calculated the percentage change in stock prices or the returns earned by these companies. During this period, the Sensex rose by over two-and-a-half times.
From the sample, we selected only those companies, which outperformed the Sensex during the period. There were close to 360 companies which we analysed to identify those stocks which look promising. There are a handful of companies that still have some steam left in them. However, identifying the right time to buy into stocks is as important as analysing the business fundamentals of a company.
THE MOVERS AND SHAKERS
Many of the companies that feature in the list had suffered losses during the previous year. This could be one reason why their stock prices had plummeted in 2009 apart from the slowdown in the broader stock market. As a result, these stocks corrected, once the economic rebound too place in the early part of FY10. It is important to scout for companies, which have a consistent track record.
For instance, companies in the consumer segment have been able to outperform all other sectors. With the growing consumer demand, this is likely to hold true even in the coming quarters. VIP Industries tops our list. Its stock price rose 22-fold since March 2009. Auto company Force Motors and finance company Bajaj Finance followed in that order. (For the full list, log on to www.etintelligence.com) Auto and FMCG companies dominate our list.
One out of every four companies in the top 100 was from these sectors. Nearly 30% of the companies were from sectors such as construction, banking and finance, IT and textiles.
INVESTMENT CUES
Of the top 100 companies in the list, we have focused on a few companies, which investors should check out before putting their money. ( Click here for details ). Growth in auto companies can be largely attributed to the low base in FY09. Financial stimulus by the government and easy availability of loans have boosted the sector. Auto sales so far in the current fiscal look encouraging. This should also benefit auto ancillary companies such as Jamna Auto Industries and Sundaram Clayton.
Jamna Auto had posted an impressive turnaround in FY10 after suffering losses in the prior year. It is expected to do well even in the future, given the demand scenario. However, Sundaram Clayton looks richly valued at the current valuations. Investors can book profits and enter at lower levels. The capital goods sector is buzzing with activity given their huge order books. The stocks of BGR Energy and Greaves Cotton are expected to see some buoyancy considering the strong revenue visibility in the coming quarters.
However, McNally Bharat looks expensive at current valuations and investors may have to wait for a while before taking fresh exposure in this counter. In the banking and finance segment, firm credit demand and improving asset quality could be key triggers going ahead. The stocks of Allahabad Bank , LIC Housing Finance , and Bajaj Finance look poised for future growth. Investors, who are keen on an exposure to chemical stocks, can consider Phillips Carbon Black and Supreme Industries. In view of the expansion programmes of Indian tyre manufacturers and growing automobile sales, Phillips Carbon Black is likely to benefit.
The company has expansion plans in its user segments such as tyre and automobile makers. For Supreme Industries , apart from its core plastics business, real estate development at its Andheri site may add an extra punch to its valuations. While we have considered only those companies with a solid track record, investors need to keep in mind the fact that past performance is no guarantee for future growth. Investors can consider the companies which we have listed on Page 2 for further investment analysis.
Of the top 100 companies in the list, we have focused on a few companies, which investors should check out before putting their money. ( Click here for details ). Growth in auto companies can be largely attributed to the low base in FY09. Financial stimulus by the government and easy availability of loans have boosted the sector. Auto sales so far in the current fiscal look encouraging. This should also benefit auto ancillary companies such as Jamna Auto Industries and Sundaram Clayton.
Jamna Auto had posted an impressive turnaround in FY10 after suffering losses in the prior year. It is expected to do well even in the future, given the demand scenario. However, Sundaram Clayton looks richly valued at the current valuations. Investors can book profits and enter at lower levels. The capital goods sector is buzzing with activity given their huge order books. The stocks of BGR Energy and Greaves Cotton are expected to see some buoyancy considering the strong revenue visibility in the coming quarters.
However, McNally Bharat looks expensive at current valuations and investors may have to wait for a while before taking fresh exposure in this counter. In the banking and finance segment, firm credit demand and improving asset quality could be key triggers going ahead. The stocks of Allahabad Bank , LIC Housing Finance , and Bajaj Finance look poised for future growth. Investors, who are keen on an exposure to chemical stocks, can consider Phillips Carbon Black and Supreme Industries. In view of the expansion programmes of Indian tyre manufacturers and growing automobile sales, Phillips Carbon Black is likely to benefit.
The company has expansion plans in its user segments such as tyre and automobile makers. For Supreme Industries , apart from its core plastics business, real estate development at its Andheri site may add an extra punch to its valuations. While we have considered only those companies with a solid track record, investors need to keep in mind the fact that past performance is no guarantee for future growth. Investors can consider the companies which we have listed on Page 2 for further investment analysis.
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