Returns for an investment of Rs 1 lakh in any BSE Sensex stock exactly a year ago would have beaten Consumer Price Index (CPI)-based inflation.
This is contrary to the belief that markets would correct amid the US Federal Reserve tapering its bond-buying programme, nervousness ahead of the Lok Sabha elections, and the burgeoning current account deficit.
Of the 30 BSE Sensex stocks, 29 have gained 15.6-134 per cent since August 29, 2013, when the S&P BSE Sensex hit its 52-week low of 18,071. During this period, CPI-based inflation has ranged between 9.5 per cent and 11.16 per cent.
While the benchmark index has risen about 50 per cent since August 29 last year, Axis Bank, Maruti Suzuki and Larsen and Toubro (L&T) have gained 134 per cent, 122 per cent and 112 per cent, respectively. In other words, an investment of Rs 1 lakh in these stocks would now be worth Rs 2,33,499, Rs 2,22,090 and Rs 2,11,438, respectively.
Analysts attribute the rise to the gradual recovery in investor sentiment, amid hopes of a recovery in the macro economy, which saw investors flock to cyclical, policy-driven and high-beta sectors. This followed the National Democratic Alliance government taking charge at the Centre after the general elections in May.
"L&T is the best bet to play the cyclical recovery. Bhel remains an underweight compared to L&T, as the latter gives exposure to the infrastructure and capital goods sectors, besides being a play in the defence space. It also gives me comfort in terms of the current execution (of projects). In terms of banking, the valuation of private banks such as Axis Bank and ICICI Bank was around 1x book value or lower a year ago, when markets were at their 52-week lows. At that time, these stocks were value buys," says Amar Ambani, head of research, India Infoline Group.
While these stocks top the returns table from a one-year perspective, other top gainers - BHEL, ICICI Bank, Tata Steel, Mahindra & Mahindra, ONGC, Tata Motors and Sun Pharma - have risen 71-93 per cent during this period.
On the other hand, NTPC, ITC, Infosys, Wipro, Reliance Industries, Tata Power and Hindustan Unilever are at the bottom of the returns table.
"I think investors should wait and watch, with regard to Infosys, given the new changes at the company, and add the stock to their portfolio gradually. On a relative basis, Wipro looks better. I prefer ITC to HUL at current levels. Through the next year, I expect average returns of 15 per cent on these stocks," says K Subramanyam, assistant vice-president (institutional research), Asit C Mehta Securities.
Ambani of India Infoline Group suggests one could stay invested in L&T, which might appreciate about 40 per cent in the next two years. He expects the ICICI Bank stock to touch Rs 2,125 in two years. Axis Bank could rise 15 per cent, he says.
Analysts at Nomura have included Axis Bank, ICICI Bank and L&T in their top-10 strategy picks.
src:sify.com