Madhuchanda Dey Moneycontrol Research
Thanks to the decisive mandate for Narendra Modi in Uttar Pradesh, the Nifty is set for a two-year closing high. It means that markets have come full circle two years to the month after a similar closing high of 8996 on March 3, 2015. While globally passive funds tracking the index have caught investors’ fancy, in India the reality is a tad different. The divergence of stock performance within the Nifty suggests that alpha managers can still have the last laugh.
As the exhibit suggests, each of these blue chips has outperformed the Nifty that delivered point-to-point return of 1.8 percent. Yes Bank by decoupling from other corporate lenders, Maruti with a revamped product pipeline, Bharat Petroleum due to fuel price de-regulation, Zee Entertainment with strong advertising and subscription revenue and absence of viable listed competition, Reliance on reaping the benefit of multi-billion dollar capex and IndusInd with a consistent performance across market cycles, have all managed to stand out.
If the outperformance of select Nifty stocks look interesting, then if we extend the exercise to the entire market and scan through over 7400 stocks, the results are even more intriguing.
In the past two years, close to 266 stocks delivered more than 100 percent return. Of these, 5 stocks have delivered more than 1,000 percent.
Is there a secret recipe to pick multibaggers?
The common thread in majority of these stocks is a business turnaround. Dwarikesh Sugar, coincidentally, is a UP-based integrated sugar manufacturer that returned to the black in FY16 with the uptick in the sugar cycle. Allsec Technologies, a business process outsourcing company also experienced a business turnaround. Uniply Industries and Rushil Décor, both in the businesses of Plywood, veneer etc have been companies that have seen profit growth of 82 percent and 34 percent, respectively. Investors, therefore, need to focus on deep-dive research even where the overt numbers look unexciting. More often than not, smart money has made the best of returns from the so-called ‘turnaround businesses’. Interestingly, most of these stocks have negligible mutual fund ownership.
Now turning to the rest of the winners in the 100 percent plus club - 61 percent of the companies are in the market capitalisation range of less than Rs 1,000 crore thereby falling in the small cap category in market parlance. While the 20 percent absolute return of the BSE Small Cap Index is itself impressive, the alpha managers have made a killing by picking up stocks that have generated 5x the return of the index. DII (Domestic Institutional Investors) inflows and the performance of mid & small cap have created a virtuous cycle where more liquidity is supporting superior returns in mid & small cap companies (primarily by exploiting information asymmetry) and leading to greater inflows. DIIs have pumped in close to USD 5 billion in FY17 after putting USD 12 billion to work in FY16.
Besides the lion’s share of small cap, the multi bagger club has 27 percent stocks in the market capitalisation range of Rs 1,000 –Rs 5,000 crore. So small and mid-cap companies put together have contributed 88 percent to the winners’ list by number. Of the remaining, 5 percent stocks are in the market cap category of Rs 5,000-Rs 10,000 crore, and the pure large cap (Rs 10,000 crore) contributed a little over 6 percent to this list.
In the last three years, mid and small caps have clearly stolen the thunder; it will be interesting to see who takes over the baton in the next 1K move of the Nifty.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
