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Beating the Sensex - Views on News from Equitymaster
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  • Dec 2, 2003

    Beating the Sensex

    Indian stock markets have witnessed strong gains in recent times with the BSE-Sensex rising by as much as 58% in the past one year. However, there have been companies whose share prices have appreciated to such an extent that they have beaten the index returns by a good margin and have given extremely high returns to investors. In this article we list the top ten companies, which have gained the highest during the last one-year and try to look into the (fundamental) reasons (if any) behind such optimism.

    Top 10 gainers...
    Company 1-Dec-03 2-Dec-02 %change
    Sterlite 1,570 144 990.3%
    Lupin 725 111 553.4%
    Hind.Zinc 117 18 550.0%
    Sesa Goa 447 72 520.8%
    Oriental Bank 231 45 413.3%
    SAIL 44 9 388.9%
    G.E.Shipping 139 32 334.4%
    HCL Infosys 369 97 280.4%
    Moser-Baer India 299 84 256.0%
    M&M 359 107 235.5%

    As is evident from the above table, the list is a fair mix of both, the new economy sector companies such as HCL Infosys and Moser-Baer as well as the old economy brick and mortar companies such as Steel Authority Of India (SAIL) and Sterlite.

    The top gainer from the list includes the domestic copper giant, Sterlite, whose shares have appreciated almost 10-fold in the last 12 months! While there is optimism towards the stock on account of copper prices trading at highs not seen in recent times and group holding company, Vedanta Resources, scheduled to get a listing on the London Stock Exchange, the surge of the order of almost 1,000% needs a lot more justification than that.

    As far as the other metal companies (in the table above) are concerned, the improvement in the metals cycle led by the insatiable appetite of China for metals such as steel and iron ore to feed its infrastructural revolution, has led to impressive growth in revenues for companies such as SAIL (India's largest steel company) and Sesa Goa (India's largest private sector exporter of iron ore). As a result, their stocks have appreciated by a huge 389% and 521% respectively. Moreover, these companies are also being helped by strong internal demand in view of the infrastructure development activities being undertaken in the country.

    Among the new economy sector stocks, while HCL Infosys has risen 280%, Moser Baer, which is among the world's largest producer of optical data storage products (floppy disks, recordable compact disks etc) has also seen its market-cap shoot up by 256%. It must be noted here that in the past five years, Moser Baer's net profits have grown at a CAGR of 86% despite facing intense competition in the global markets.

    Prominent among the other gainers are companies like GE Shipping, Lupin and Oriental Bank. While GE Shipping has benefited from the increased exports of steel and iron ore to China, which has led to a significant increase in freight rates, Oriental Bank's strong balance sheet and good quality of assets have resulted in investors making a beeline for the stock. In case of Mahindra & Mahindra (M&M), the market leader in the tractor and utility vehicles (UV) segments, benefits of higher capacity utilisation and better sales mix, which is also reflected in the improved operating margins, has helped the M&M stock find a place in the top 10 gainers of the year.

    While it is true that most of these stocks were undervalued and languishing at lower levels a year ago and had every reason to experience an uptrend on account of good growth numbers, we are of the view that the investors, from hereon, should take a realistic view of the growth prospects of these companies and then arrive at a price rather than getting caught in the bull market frenzy.



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