Top gainers & Top losers

The stock market performance since 2000 till recently has been disappointing for retail investors. Occasional signs of an upturn have been mired by few external shocks like September 11, Iraq war, border conflict and internal unrest in Gujarat and the stock market scam. But the recent rally has come as a relief to investors. We consider the performance of benchmark indices in general and the performance of the BSE 'A' group in the last one year. As can be seen from the table below, while the Sensex has gained 9.7%, Nifty has moved up by 6.4% for the period between July 1st, 2002 to July 2nd, 2003. However, bulk of the gains have come since May 2003. Since May'03, the Sensex has gained by a commendable 24%. While this rally may have caught some section of the investing public by surprise, if one considers the fundamentals, the writing was on the wall. The Sensex, based on a rough estimate, was trading at around 11.7x trailing twelve months earnings in May 2003. This was among the lowest valuation levels since July 1998. This, despite a favorable interest rates scenario, manageable inflation levels and a slow but steadily growing economy.

Coming to the top gainers over the last one year, banking sector led by Oriental Bank has seen significant correction in valuations. PSU banking stocks, which were trading at between 0.8x-1x adjusted book value, are currently trading at 1.3x-1.5x. The passing of the asset reconstruction bill, growing retail advances and the quantum of unbooked profits in the G-Sec portfolio of banking majors have all contributed to the rise in banking stocks in the last one year. What is also noticeable from the gainers list is that none of the top rung index stocks are a part of the rally. It has been an eventful year for mid-cap stocks like Lupin, Thermax, Exide and Arvind Mills.

Arvind Mills, the erstwhile darling of the bourses, seems to be back on the investor's radar. While the recovery in denim prices in the international markets have played a part, the debt restructuring arrangement has improved prospects of the company significantly. however we maintain our stance to exercise caution considering the poor track record of the company. Thermax's 97.9% rise over the last one year could be attributed to the growing order book position of the firm. After the restructuring exercise, the company is far more nimble-footed and is likely to benefit from increased industrial activity in the long run.

Though the rally is a positive for the market, the sharp rise in stock prices of Sterlite Industries and United Phosphorus has to be viewed with caution. Investor's have often been taken for a ride in the past and hope they do not repeat the same mistakes. If one were to look at the top losers list on the BSE 'A' group, there are not many surprises. Most of the companies have a dubious track record. The likes of Silverline, DSQ Software, Pentamedia and Sterlite Optical have nothing to write home about.

Having looked at the gainers/losers over the last one year, the question in everyone's mind at the current juncture is whether the rally is for real? How sustainable is the upturn in the stock markets? While there is no denying the fact that the recent rally is for real, the sustainability of the same depends on various factors in the short to medium term (i.e. 1-2 years). Though early reports on the monsoons look promising, it remains to be seen whether it translates into higher consumption demand. Since monsoons have been below normal for the last four years, the rural economy has been affected and it will take some time to recoup. Secondly, the forthcoming elections would also determine the future course of action, as in a top-down approach to investing, politics plays a vital part.

However, when viewed from a long-term perspective (more than 3 years), one is positive about indices moving further north. As we have maintained before, even at the current juncture, Indian stock market seems to be attractively valued for building a portfolio of stocks.