Given a choice, most investors would want to skip the year 2020 from their portfolio.
Both Sensex and Nifty50 are down by about 15 percent each so far in the year 2020. Meanwhile, S&P BSE Midcap index fell 11 percent and S&P BSE Smallcap index declined nearly 8 percent.
Broader market has outperformed benchmark indices so far this year. The last six months have been a roller coaster ride for the markets. From record high in January to fall around Union Budget in Feb, and then bear market in Feb-March triggered by COVID-19 outbreak across the world.
Although both Sensex and Nifty have rallied more than 30 percent each from their March lows, thanks to global liquidity, but a bulls market is still far away, caution experts.
In the first half of 2020, only 121 stocks from the S&P BSE 500 index delivered positive returns. Among them, three stocks - Adani Green Energy, Suzlon Energy and GMM Pfaudler - rose more than 100 percent.
“The rally in GMM Pfadler and Adani Green is somewhat linked to the fundamentals, but the rally in Suzlon Energy is not justified considering its financial position,” Sumeet Bagadia, Executive Director at Choice Broking told Moneycontrol.
“GMM Pfadler is the market leader in glass-lined equipment. It is anticipated to benefit from the shifting of chemical manufacturing from China to India,” he said.
Bagadia further added that apart from certain corporate action in the Adani Group, the rally in the Adani Green shares might be linked to it winning the world’s largest solar tender. Rally in Suzlon Energy might be in the anticipation of certain positivity in the renewable sector.
Out of 121 stocks, 17 rallied 50-100% in the first six months of 2020. These include Ajanta Pharma, Vaibhav Global, Dixon Technologies, Bayer CropScience, Granules India, The India Cement and Aurobindo Pharma.
Most of the stocks are from the small & midcap space which have rallied over 50 percent in the first six months of 2020. The sheer outperformance in these stocks is largely attributed to the catch-up rally in the broader market space, and stock-specific fundamental factors.
“Sheer underperformance and the oversold state of small and midcap stocks have resulted in outperformance when the market, in general, bounced back from lower levels,” Umesh Mehta, Head of Research, Samco Securities told Moneycontrol.
“Cash market stocks in mid and small-cap space have always outperformed the indices after a major correction in their prices. So this time is no different. The small and midcaps that made a top in 2018 followed by 2-3 years of major price cuts are now experiencing outperformance,” he said.
Mehta further added that long-term investors should not get carried away by such outperformance and can have exposure to the extent of 20 percent in such small and midcap stocks with balance 80 percent in frontline large caps.
Stocks which Underperformed:
More than 70 percent of the stocks in BSE500 gave negative returns in the last 6 months. And, 18 out of 376 stocks fell more than 50 percent that include names like IndusInd Bank, Future Retail, Repco Home, Lemon Tree, and Raymond.
Although the market has bounced back from the lows recorded on March 24 we are still in a bear market rally. Economists at top global institutions see contractions of 4-5 percent in India’s GDP in 2020 due to lockdown.
The lockdown has not only impacted the economy but will lead to a big dent in earnings of India Inc. in the upcoming quarters. But, with news of reopening of economy, many stocks have seen a bounce back as well.
“The markets peaked at the start of the year in January 2020 and we witnessed a vertical fall from the highs so we are witnessing a lot of stocks that gave negative returns but if one look at the broader picture these stocks have witnessed sharp up move also from their respective lows in March 2020,” Rajeev Srivastava, Chief Business Officer at Reliance Securities told Moneycontrol.
“We believe one should follow a sectoral approach and then drill down to individual stock wise research for better understanding. From the above-mentioned names stocks like IndusInd Bank, Repco Home looks good and one should buy in declines as they survived the mayhem, and once the economic recovery starts it would deliver strong earnings growth and returns over the coming years,” he said.
What should investors do?
The year 2020 started on a positive note and the bulls took the market to record high in the first month of January, but markets changed course post 20 of January when both Sensex and Nifty hit their respective lifetime highs.
The first six months of 2020 was nothing short of a roller-coaster ride for investors where markets moved from a bull phase to a bear phase, and then again back in an intermediate bull phase.
The next months will be interesting for Indian markets but the upside is likely to remain capped. People are looking forward to the post COVID world which nobody can put a definitive timeline. But, stability would only come once we have a vaccine in place.The next months will bring plenty of opportunities for long term investors to get into stocks. The focus should be on stocks that are fundamentally strong, have strong dividend yield, and low leverage on books, suggest experts.
“Safety of portfolio and steady returns are one of the most important criteria for making an investment portfolio both for a new and existing player,” Umesh Mehta, Head of Research, Samco Securities told Moneycontrol.
“Stocks that offer high dividend yields upwards of 6 percent and low debt with a good track record of 5 years can be a very good strategy to accumulate stocks irrespective of the 2nd wave, global trade wars, India-China disputes etc.,” he said.
Mehta further added that such a composition of baskets will give above-average returns in 2-3yrs of time frame. “In a falling interest rate scenario, getting dividend yields of 5-6 percent over a long period of time is certainly a great investment theme that may not come true every now and then,” he said.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.