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Did you buy these stocks last year?

Dec 30, 2010

After witnessing one of the sharpest rises in 2009, stocks markets in India had a strong outing in 2010 as well. While the BSE-Sensex rose by 15% YoY, the BSE-100 Index rose by 13% YoY (closing quotes for both the indices as on 28 Dec 2010). In 2009, the two indices surged by a sharp 81% YoY and 85% YoY respectively. In this article, we will be discussing the best performing stocks in 2010 forming part of the BSE-100 Index. The list goes as follows - Bank of Baroda (banking), Bajaj Auto (auto), Sun Pharmaceuticals (healthcare), Tata Motors (auto) and Shriram Transport Finance Co. Ltd (NBFC).

Bank of Baroda (Returns in 2010 - 74%; 2009 - 82%)

Bank of Baroda's ascent in terms of valuations during 2010 were primarily driven by two factors. One that the bank's valuations were brought at par to that of its PSU peers with similar fundamentals and growth prospects. Two, despite being a PSU, Bank of Baroda did not bear the brunt of restructured assets on its asset quality like its peers. In addition improvement in margins also helped the bank improve profitability expectations. Efforts on the fee income front and plans of hiring around 4,200 employees for the additional franchises during the next fiscal gave investors some visibility about the bank's revenue growth prospects.

Data Source: CMIE Prowess

Bajaj Auto (Returns in 2010 - 68%; 2009- 350%) and Tata Motors (Returns in 2010- 61%; 2009 - 398%)

Auto stocks continued their strong performance in 2010. In 2009, stocks of Bajaj Auto and Tata Motors rose by a massive 350% YoY and 398% YoY respectively. These stocks were part of the top performers list in 2009 as well.

In 2010, they continued to perform well on the back of the strong increase in volumes. Bajaj Auto, for instance, reported a strong 56% YoY increase in volumes sales during 1HFY11. Volumes in the months thereafter have remained strong as well. While the company does not have a very vast product portfolio, this very fact played a good role in the volumes boost. The company's renewed interest in the entry level segment (in the form of the 'Discover' brand) helped it gain strong market over the last year. Apart from the good volumes, the company also put up a very good operating performance as it was able to maintain margins close to the previous year levels. This is at a time when the industry is witnessing pressure at the operating level on the back of higher input costs.

As for Tata Motors, while the company benefitted from the continued offtake in sales of commercial vehicles, the stock got a boost on the back of the bounce back in sales of its subsidiaries - Jaguar and Land Rover (JLR). Wholesale sales volumes for these two entities increased by 27% YoY and 42% YoY respectively. As for the company's financial performance, there is a stark difference as compared to last year. While consolidated revenues rose by 49% YoY during 1HFY11, its operating profits surged by 291% YoY. This was on the back of a strong performance of JLR. In fact, JLR's profitability was better than that of the standalone entity during this period.

Data Source: CMIE Prowess

Sun Pharmaceuticals (Returns in 2010 - 59%; 2009 - 42%)

The stock of Sun Pharma derived the benefit of good performance during 1HFY11 with impressive growth in sales and profits. Having said that, this performance was largely attributed to the one-time sales that the company generated from the cancer drug 'Eloxatin', which was distributed by Caraco in the US market. Due to a court order which banned Sun Pharma from selling the drug, there were no revenues from the same in the second quarter. The company was up against Sanofi-Aventis SA, which had appealed for barring Sun Pharma to market the generic version of the drug in the US. However, recently, a US appeals court ruled a case in favour of Sun Pharma with respect to this drug which could be one of the reasons for the interest in the stock.

The second major development that took place for Sun Pharma this year was related to the Israeli firm Taro. The uncertainty surrounding the acquisition of this company came to an end when the Israeli Supreme Court ruled in Sun Pharma's favour. Now with Taro's financials being clubbed with that of Sun Pharma's, the latter's sales are expected to ramp up during FY11.

Data Source: CMIE Prowess

Shriram Transport Finance (Returns in 2010- 59%; 2009 - 149%)

Shriram Transport Finance had a stellar 2010. It has an impressive run in the stock markets, running up by about 59% YoY. The company has a stronghold over the entire used truck manufacturing business with an over 70% share. Well, with the entire auto sector staging a comeback, the auto financers were not to be left behind. Even with the RBI hiking rates 6 times this year, disbursements managed to grow at 25%. New commercial vehicles also saw a push with general buoyancy in the rural markets due to a good monsoon and higher employment. A 31% increase in disbursements of new-commercial vehicles was seen. This business however has lower yields compared to financing older vehicles.

The current quarter (3QFY11) should also be good for the company due to increased buying in the festival season. The company also started Shriram Automall, a platform for second hand truck trading this year. Its equipment financing division was also launched, which is expected to benefit from the US$ 1 trillion infrastructure investment expected in the 12th five-year plan.

Data Source: CMIE Prowess

Conclusion

With the BSE-Sensex and the BSE-100 indices ending the year on a strong note, many largecap stocks have reached valuations that are above our comfort levels. While some may believe that these valuations are justified on the back of higher earnings expectations, investors should keep in mind that FY10 was a year where most of the companies reported strong operating performances. This was both in terms of a margin expansion as well as strong earnings growth. However, it is only a matter of time before the base effect kicks in and a normalised growth rates come into play. On the same occurring, the high valuations will not seem justified.

Therefore, if you missed out on the winners of 2010 and are looking at making up for it in 2011, make sure that you have a closer look at the valuations before investing.

Happy stock picking in 2011!


Equitymaster requests your view! Post a comment on "Did you buy these stocks last year?". Click here!

13 Responses to "Did you buy these stocks last year?"

chitra nathwani

Jan 20, 2011

better expertise expected

Like 

sunguru

Jan 12, 2011

i feel that this is a method of cheating people and making noney..

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Yatin

Jan 12, 2011

some of the recommendations have worked, but most have not. need to hit the nail on the head many more times. look forward to more accurate buy/sell forecasts.
12/1/11

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P. Srinivasan

Jan 11, 2011

Anybody can make this report with the data available publicly. The use of hindsight by all investors in stock market is continous and the feeling :" If I had done that..". So what is the use of spending time to write articles which almost all investors keep muttering day in and day out, bull or bear market?

End game is: We are not making money, long term,medium term or short term. Period.

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DEEPAK DADLANI

Jan 9, 2011

You are suppossed to be experts. Such articles are like a news bulletin.

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goap

Jan 8, 2011

faltu

Like 

ak

Jan 8, 2011

I think if we make sure we sell stocks which equitymaster recommends or go short on those stocks, we will make lot of money :-)
One or 2 stocks recommended by them do good while most of them do not.

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sangita

Jan 8, 2011

Do you think your recommendations are worth for paying or
total wastage of money. Give your opinion. we will reply.

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A.Janarthanam

Jan 8, 2011

I have no purchsed

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hameed

Jan 7, 2011

There are over 5000 sensex active share, what is the use of telling whathappened in 2010. I am subscribed to midcap select, stock select and am yet to find something really outperforming in the recent past. Share selection need a lot analysis, in sight, and careful planning, what is already known to public will be of no use

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Equitymaster requests your view! Post a comment on "Did you buy these stocks last year?". Click here!

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