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  • Jan 11, 2022 - What the Top Gainers and Losers of 2021 can Teach You About Stock Picking

What the Top Gainers and Losers of 2021 can Teach You About Stock Picking

Jan 11, 2022

Every Long-Term Investor Needs to Prepare for the Population Problem

The year 2021 was extremely rewarding for investors. The liquidity unleashed by central banks across the world in 2020 continued to fuel the rally in Indian share markets.

The Sensex crossed the 60,000 mark while the Nifty crossed the 18,000 milestone. The dizzying upward trajectory of the indices added a whopping Rs 72 tn to investors wealth.

Sector-wise, the power and real-estate sectors delivered maximum gains. This was due to a strong recovery. The FMCG sector delivered the smallest gains, largely reflecting weak consumer demand in the economy.

How did individual stocks fare though? Let's find out...

Here are the top 5 gainers of 2021.

#1 Adani Total Gas (355%)

Shares of Adani Total Gas rose 355% during the year on the back of better than expected quarterly results and expansion plans.

The stock also got a boost as global index services provider Morgan Stanley Capital International (MSCI) added it to the MSCI India index.

The firm, a wholly-owned subsidiary of Adani Enterprises, is the largest company in the gas distribution sector. It caters to 38 geographical areas which accounts for 8% of India's population.

It plans to expand its distribution network deeper into Tier II and Tier III cities. It has also recently executed a joint venture agreement for setting up a manufacturing facility for mechanical and smart gas meters under the Atmanirbhar Bharat initiative.

#2 Adani Transmission (299%)

Adani Transmission shares rose 299% during the year as the stock was added to the MSCI index. Investors also bet on the company on account of its growth pipeline and acquisitions.

The company is the transmission and distribution business arm of the Adani group, one of India's largest business conglomerates.

It is also the country's largest private transmission company with a cumulative transmission network of around 18,500 ckt km. Of this 13,400 ckt km is operational and the rest, including the new projects, are at various stages of construction.

It aims to reach its goal of 20,000 ckt km of transmission lines by 2022.

It recently received a Letter of Intent (LoI) for a project in Gujarat with an estimated capital expenditure of more than Rs 12 bn. The company is set to build, own, operate and maintain the transmission project for a period of 35 years.

#3 Adani Enterprises (248%)

Adani Enterprises shares rallied 248% during 2021 as the group's companies doubled down on growth and expansion. The stock's inclusion in the MSCI index also contributed to the rally.

As the holding company of Adani Total Gas and Adani Transmission, two of the top gainers of 2021, it's no surprise that Adani Enterprises is third on the list.

Over the past few years, the Adani Group has entered new businesses such as airports, roads, oil refining and petrochemicals, solar energy, real estate, and logistics. This is in addition to its industry-leading positions in ports, power, transmission, gas and edible oils.

The conglomerate recently announced that it will set up a new subsidiary, ANIL (Adani New Industries) to undertake green hydrogen projects, generate low carbon electricity and manufacture wind turbines, solar modules and batteries.

#4 Tata Power (186%)

The stock of Tata Power rallied 186% during the year and was a favourite with investors as an increase in demand for electricity during the pandemic boosted the company's prospects.

It also got a boost from the various orders and developments in the electric vehicle (EV) charging stations segment.

Tata Power is the largest power generation company in India. The company has taken the lead in establishing charging stations around the country.

Currently, the company has installed 961 charging stations. By the end of the financial year 2022, it hopes to more than double that number to 2,000.

In 5 years, it wants that number to increase five times.

#5 Tata Motors (159%)

Tata Motors rose 159% during 2021 on the back of robust sales numbers and a record order book for Jaguar Land Rover. The company's prospects as India's largest electric vehicle manufacturer also drove the stock higher.

The company recently completed the formation of its electric vehicle subsidiary Tata Passenger Electric Mobility (TPEML). The subsidiary will focus only on passenger electric and hybrid vehicles.

TPEML has set itself an ambitious target of launching ten EVs over the next five years.

Apart from this, the group is also busy building what it calls Tata UniEVerse, an ecosystem that will leverage group synergies.

In the ecosystem, several Tata companies will together provide electric vehicle solutions to consumers to improve adoption in the country.

The plan is to bring down EV ownership costs to the level of a petrol or diesel vehicle by 2023.

Top Gainers in 2021 (Up 65% or more)

Adani Total Gas Ltd. 355%
Adani Transmission Ltd. 299%
Adani Enterprises Ltd. 248%
Tata Power Company Ltd. 186%
Tata Motors Ltd. 159%
SRF Ltd. 113%
Vedanta Ltd. 113%
Apollo Hospitals Enterprise Ltd. 108%
Hindalco Industries Ltd. 100%
Bajaj Finserv Ltd. 85%
Wipro Ltd. 84%
Tech Mahindra Ltd. 83%
Piramal Enterprises Ltd. 78%
Bajaj Holdings & Investment Ltd. 74%
Grasim Industries Ltd. 74%
Tata Steel Ltd. 73%
JSW Steel Ltd. 68%
Avenue Supermarts Ltd. 67%
State Bank Of India 65%
Data Source: Ace Equity

While the above stocks had a phenomenal run, there were some that did not do too well.

Here are the top 5 losers of 2021.

#1 Bandhan Bank (-37%)

Shares of Bandhan Bank fell 37% during 2021 as the pandemic had a disproportionate impact on the bank's MFI (microfinance) portfolio. Microfinance is the mainstay of the bank's business, accounting for more than 60% of its loans.

The MFI issue also took a political colour in Assam, hurting the bank's collection efficiency as well as its financials. As a result, the bank reported lower than expected numbers as it made provisions to account for the bad loans.

However, the bank's management has said that all the asset quality stress built up over the last eighteen months due to the disruptions caused by the pandemic has now been addressed.

The bank also plans to reduce the dependence on MFI loans to 30% and increase focus on mortgage loans to 30% by 2025.

#2 Aurobindo Pharma (-21%)

Aurobindo Pharma shares declined 21% as the company posted weak quarterly results on the back of a decline in the US market and antiretroviral (ARVs). The US business contributes 50% to the total revenue.

Aurobindo Pharma is a pharmaceutical company that manufactures generic pharmaceuticals and active pharmaceutical ingredients (APIs)

The profitability of the company was also impacted by cost pressure on some key raw materials as well as higher logistics costs.

The company expects demand to be better going forward and prices to stabilize over the next few quarters. It has recently launched the Covid-19 drug Molnupiravir under the brand name "Molnaflu" in India.

#3 Hero MotoCorp (-21%)

The stock of Hero MotoCorp fell 21% as the company's market share fell by 4.7% during the year. High cost of ownership, weak rural demand, work from home and the latest threat of omicron impacted sales.

The two-wheeler industry faced poor demand even prior to the pandemic - longer upfront insurance and stricter emission standards increased the cost of ownership.

The push towards personal mobility was expected to aid growth for two-wheelers. Instead, the increased cost of fuel dented demand.

The company expects new launches and recovery in rural demand to help recovery in lost market share.

Hero MotoCorp's electrification journey is expected to begin in 2022, with the company set to launch its first electric scooter by March.

To gain an edge on other manufacturers, Hero MotoCorp has decided to adopt Ather Energy's fast-charging tech for its electric scooters. It has also partnered with Gogoro to roll out Hero-branded e-scooters with a swappable battery.

#4 Petronet LNG (-13%)

Shares of Petronet LNG fell 13% during the year as rising gas prices impacted the company's profitability. Huge demand from China and Japan, along with supply constraints resulted in a spike in spot LNG prices.

Going forward, the company has said that it expects spot LNG prices to cool off post the winter season.

The management also remains confident about achieving over 900 tbtu in volumes for the financial year 2022, despite the immediate challenges.

It will expand its Dahej capacity to 22.5 MMPTA (million metric tonnes per annum), while Kochi would see a ramp-up in utilization from newly connected consumers.

#5 Kotak Mahindra Bank (-10%)

Kotak Mahindra Bank's shares took a beating and fell 10% during 2021 as higher provisions and operating expenditures impacted the bank's profitability.

The stock was also under pressure towards the end of the year as banking and finance stocks took a hit on account of FPIs' selling spree.

The bank's asset quality has improved sequentially over the last few quarters as a result of which its provisions have declined. It has also changed its loan mix to improve its net interest income (NII).

Recently, the bank announced that its subsidiary Kotak Prime has acquired Ford Credit India's loan portfolio of Rs 4.3 bn for an undisclosed sum.

The deal comes three months after Kotak Mahindra Group's acquisition of the vehicle financing loan portfolio of Volkswagen Finance comprising passenger cars, two-wheelers and commercial vehicles.

Top Losers in 2021

Bandhan Bank Ltd. -37%
Aurobindo Pharma Ltd. -21%
Hero MotoCorp Ltd. -21%
Petronet LNG Ltd. -13%
Kotak Mahindra Bank Ltd. -10%
ICICI Lombard General Insurance Company Ltd. -8%
Indraprastha Gas Ltd. -7%
Bajaj Auto Ltd. -7%
Dr. Reddy's Laboratories Ltd. -6%
Colgate-Palmolive (India) Ltd. -6%
Lupin Ltd. -5%
HDFC Life Insurance Co Ltd. -4%
MRF Ltd. -4%
Maruti Suzuki India Ltd. -3%
IndusInd Bank Ltd. -1%
Hindustan Unilever Ltd. -1%
Data Source: Ace Equity

What the top gainers and losers of 2021 tell us about stock picking...

First, the sentiment of the market is hard to predict as investors are not always rational and more so in extraordinary circumstances.

In 2021, investors were more optimistic than usual on account of abundant liquidity. A lot of companies with poor fundamentals saw their stock prices skyrocket.

Case in point, the top three gainers of the year - Adani Total Gas, Adani Transmission, and Adani Enterprises.

While in the short term, these gains might seem lucrative, strong fundamentals are what pay off in the long term.

Second, identifying a megatrend is rewarding.

Some of the top gainers of 2021 were EV stocks such as Tata Power and Tata Motors.

If you were fortunate enough to have spotted the trend, you would have made some handsome gains this year.

Third, macroeconomic factors such as inflation can impact your portfolio and should be kept in mind while picking a stock.

Stocks that fell the most this year were companies that had a tough time generating profits as inflation reared its head.

For example, Aurobindo Pharma's profitability was impacted due to rising commodity costs while Hero MotoCorp lost market share as the increased cost of fuel dented demand.

With economic growth expected to moderate amid signs of tighter monetary policy, picking the right stocks to invest in is now more important than ever.

Your best bet to make the most of your investments is to be thorough with your research and make informed decisions grounded in facts as opposed to instinct or emotions.

It also pays to remember that assets linked to the financial markets may fluctuate in value. So, take adequate measures that will help you avoid the stress related to timing the market.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Ayesha Shetty

Ayesha Shetty is a financial writer with the StockSelect team at Equitymaster. An engineer by qualification, she uses her analytical skills to decode the latest developments in financial markets. This reflects in her well-researched and insightful articles. When she is not busy separating financial fact from fiction, she can be found reading about new trends in technology and international politics.

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