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Stock market may not perform, stocks do

Financial Planner and trainer Vivek Sharma explains how individual stocks have returned high yields in the years when the market has seen a decline since 2008.

June 21, 2013 / 03:04 PM IST

Vivek Sharma

Are you an investor in the stock market? Are you worried about the fact that two key market indices; Nifty and Sensex have not grown since January, 2008 when they reached their all time high? If so, then it is time to think, analyse and act.

While there is no doubt that Sensex and Nifty represent the broad market performance in the stock market, the returns offered by these indices are deceptive and hide the opportunity that the stock market offers.

Also read: Financial market barometer stays set for storms

Many investors, who have left stock market thinking that market has consistently failed to generate returns in the past five plus years, need to look at the market from a different perspective. 

Even if stock market does not perform, stocks will continue to perform. Out of several stocks constituting Sensex and Nifty, some of them have done wonderfully well.

Let us look at some examples to understand this. On January 10, 2008; Sensex touched an all time high of 21,206. On the same date ITC touched a high of Rs.232 before closing at Rs. 219.7. Currently ITC trades at close to Rs. 330. It is pertinent to note that ITC had given a bonus of 1:1 in the year 2010 and if this is taken into consideration the stock price will be Rs. 660.

So in the same period in which broad market index has failed to generate any positive return ITC has given almost 200 percent return if dividend is also taken into consideration. Similarly HDFC’s stock price closed at Rs. 3128 on the date when stock market touched all time high. Currently the price is Rs. 833.

If the face value change is taken into consideration, adjusted stock price will be around Rs.4150. So HDFC stock has also offered positive return for stock market investors.

There is other side of the story too. ICICI Bank reached Rs.1399 on 10th January, 2008 while today it trails below this level. Same is the story with some other stocks which are part of Sensex and Nifty.

So what is the lesson learnt from performance of these stocks? The lesson is very obvious. Even when the stock market is not performing, stocks will continue to do well. The investors need to be selective and identify the stock which have potentially to do well rather than expecting market to deliver in general.

Another important learning which comes out from last five years of experience in the stock market is that stock picking is extremely critical in a flat or non moving market.

While in a rally phase many stocks deliver, during testing times only those stock perform who have excellent business model accompanied by a good management.

first published: Jun 21, 2013 03:04 pm

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