How India's Top Monopoly Stocks Performed in 2022 Offers Clues for 2023

Having a monopoly in an industry lets a firm earn higher profits as there's absence of intense competition.

Every consumer's sole supplier is the said monopoly business, so a major chunk of business flows to that firm.

However, even monopolies have to stay ahead of the curve and innovate.

They have to fight tooth and nail to seek every bit of investors' attention.

As we begin a new year, let's take a look at how India's top monopoly stocks performed in 2022 and how they are stacked up for 2023.

#1 IRCTC

Can you talk about cricket without making a mention of Sachin Tendulkar or Virat Kohli? Can you talk about football without talking about Messi or Ronaldo? Can you talk about investing in the stock market without mentioning multibagger stocks?

The answer to all these above questions is a big fat no!

Similarly, one cannot talk about Indian monopolies without talking about Indian Railway Catering and Tourism Corporation (IRCTC).

Beginning from the comfortable and luxurious ride of Rajdhani to fulfilling a common man's dream of travelling in air-conditioned coach via Garibrath, IRCTC answers to almost all travel needs.

IRCTC share price was falling in 2022. Even when railway stocks gained traction towards the latter half of 2022, IRCTC continued its downtrend.

Between January and April 2022, IRCTC's share price saw a sharp fall. From July 2022, it saw a gradual increase. However, shares of the company again saw a fall in the last two months of 2022.

If we take a look at the recent performance of railway sector stocks, we can see that most of the railway stocks and railway infrastructure stocks have rallied. But bucking the trend was the most popular railway stock IRCTC.

Expensive valuations, poor quarterly results, stock being in a consolidation zone, and continuous stake sales by the government led to a sharp fall in IRCTC share price.

The business prospects of the company, however, remain unchanged. With the expansion of rail neer (drinking water) plants capacity, launch of new trains, rise in convenience fee and provision of payment aggregator services, IRCTC's revenue is expected to grow in the medium term.

However, despite the growth prospects, and the monopoly, the valuations are pretty high.

To know more about the IRCTC check out its financial factsheet and latest quarterly results.

#2 IEX

The Indian Energy Exchange (IEX) is an Indian electronic system-based power trading exchange regulated by the central electricity regulatory commission (CERC). It started its operations on 27 June 2008.

IEX pioneered the development of power trading in India and provides an electronic platform to the various participants in the power market, comprising state electricity boards, power producers, power traders and open-access consumers (both industrial & commercial).

After giving multibagger returns in 2021, IEX share price saw a decent correction in 2022. The share price fell 46% in 2022.

Driven by the threat of losing its monopoly, poor quarterly performance, and FIIs selling stake in the company, IEX share price witnessed selling.

Around four years ago, Hindustan Power Exchange (HPX) was incorporated to be the third power exchange company. After 3 years of approval and all the procedures, HPX finally started its operation on 6 June 2022.

While HPX may threaten to take away the market of IEX, the power exchange market is expanding.

Currently, power exchange companies only have 7.6% market open to them. But slowly gates to the bigger markets are also opening to them.

Additionally, over the next decade, IEX aims to cash in on the clean energy megatrend. It recently launched India's first gas exchange, Indian Gas Exchange, and is working on launching a coal exchange.

It has also received approval from the Petroleum and Natural Gas Regulatory Board (PNGRB) to commence domestic gas trading on its platform.

This development will help IGX fulfil its commitment to increase the sell side liquidity, along with creating more opportunities for the sale of domestic gas and the discovery of a unique price.

To know more about the company, check out the company factsheet and the latest quarterly results.

#3 CAMS

CAMS to mutual funds is what Maggi is to noodles. If you have been an investor in mutual funds, the first thing that your accountant will ask you while filing your income tax return is for your CAMS statement.

Computer Age Management Services (CAMS) is a technology-driven financial infrastructure and services provider to mutual funds and other financial institutions for over two decades.

It is India's largest registrar and transfer agent of mutual funds with an aggregate market share of approximately 70% based on mutual fund average assets under management (AAUM) managed by its clients and serviced by them.

The second player, Karvy, is at a distant 26% market share.

In 2022, CAMS's share price fell 18%. This was due to poor quarterly results, and sell-off by promoters. General loss of interest in share markets due to volatility also hampered CAMS' business.

CAMS serves over 60% of assets in the mutual fund industry and provides services to more than 15 mutual fund houses.

As CAMS has a strong foothold in the mutual fund industry, it scores well on all the return ratios.

When a service company has been in the business for a long time, the sheer size of the market allows the company to reach a situation where revenue almost becomes an annuity. This annuity helps the company to maintain impressive margins.

The company's fundamentals and prospects remain strong. It is moving towards being a technology product company for mutual fund services rather than being a tech-enabled service provider.

#4 CDSL

Central Depository Services (CDSL) is the only listed depository in India and a key beneficiary of structural growth in capital markets.

There are only two depositories in India, the other being NSDL which is not listed yet.

As a securities depository, CDSL facilitates the holding of securities in digital form and enables securities transactions (including off-market transfers and pledges) to be processed by book entry.

It generates income from annual issuer charges (annuity nature of the income), transaction charges (market dependent), IPO/corporate activity charges, online data charges (through its subsidiary CDSL Ventures) and others.

To say that markets were volatile in 2022 would be an understatement. The volatility of 2022 had a clear impact on CDSL share price. It lost around 18% of the marketcap in 2022.

2021 was a good year for CDSL because there was a surge in the number of Demat account openings. However, 2022's volatility drove away investors from stock markets which in turn hurt CDSL business.

FIIs also sold stake from CDSL which dampened investor sentiment. The cyber-attack that happened in November 2022 added insult to injury.

The company quickly recovered from a cyber-attack. CDSL clarified there is no reason to believe that confidential information or investor data has been compromised.

Depository business in India is poised for long-term growth. Increasing retail participation, rising investor confidence, steady inflows in mutual funds, use of mobile trading platforms etc, will be the key drivers of depository business.

Apart from strong growth prospects, CDSL has stellar financials. The company has high operating leverage, zero debt, and healthy cash on the balance sheet.

To know more about CDSL, check out the company factsheet and the latest quarterly results.

Investment Takeaway

The above four companies maintain a lead in their businesses. IRCTC is an unbeatable monopoly but the other three companies that are IEX, CAMS, and CDSL face peer pressure from HPX, Karvy and National Securities Depository (NSDL), respectively.

However, this is not necessarily negative news because healthy competition can bring in better economies of scale.

In 2022, despite having a strong hold on business, the top four monopoly stocks bled on the bourses. This just shows that even a fundamentally strong company suffers when the general market sentiment is weak.

That is why one should be careful while investing in monopoly stocks, because all monopoly stocks are not risk-free investments. Rather, some can single-handedly drag down the returns of your portfolio.

Carefully differentiate between good monopoly stocks and bad monopoly stocks before making an investment decision.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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...