As many as 156 stocks from the BSE 500 and small-cap index have surged an over 100% each in past one year, after a strong rally in equity markets. Of these, 27 stocks that includes Aptech, Lumax Industries, Vedanta, Indian Bank, Venky's India, Manappuram Finance, Escorts and Datamatics Global Services have appreciated over 200% since February 29, 2016 when the S&P BSE Sensex hit its 52-week low in intra-day deals.
By comparison, the S&P BSE Sensex at around 28,743 levels has rallied 25% since then. On the other hand, the S&P BSE 500 index and the S&P BSE Small-cap index have rallied 32% and 43%, respectively.
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A strong inflow of more than Rs 85,000 crore collectively by the foreign portfolio investors (FPIs) and mutual funds in equities during the past one year has fuelled the market rally. That apart, an improvement financial performance by these companies for the trailing twelve-month (TTM) period ended December 31, 2016 is also partly responsible for increased investor participation in these stocks.
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While FPIs have made a net investment of Rs 46,952 crore, mutual funds have invested Rs 41,057 crore in equities, data show. As per sectoral classifications, around 17 stocks are from the chemicals and 15 from financial including banks. That apart, stocks of companies in the steel, pharmaceuticals, auto ancillary and cement sectors, too, have seen a good appreciation.
Improved performance
Out of 156 companies, 153 firms had posted more than doubled aggregate net profit of Rs 43,093 crore for the TTM ended December 2016 (TTM2016). These companies had profit of Rs 19,756 crore for TTM ended December 2015 (TTM2015).
Thirumalai Chemicals - the largest gainer among these pack for instance - has seen its market value appreciate 537% to Rs 837. The company had reported a consolidated net profit of Rs 75.76 crore for TTM2016 against Rs 5.94 crore in TTM2015. Vedanta has rallied 266% from Rs 70.85 to Rs 259 after the company trimmed its consolidated net losses to Rs 7,448 in TTM2016. It had reported a loss of Rs 16,907 crore in TTM2015.
The road ahead
Though most experts remain positive on the outlook for Indian equities over the next few quarters, a pick-up in corporate earnings, stable global and domestic macros and flows into the equity segment by domestic institutions and the FIIs remains key for the market to sustain at higher levels, they say.
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"We expect the flows to continue in the near-term. Investors should not look at a decrease in local flows as a lead indicator for Indian markets - flows will follow returns rather than the other way round. This means the recent market strength may continue despite the expected sharp earnings declines ahead," says Gautam Chhaochharia, head of India Research at UBS Securities in a co-authored report with Sanjena Dadawala.
"Our end-2017 Nifty target remains 8,800, though flows could drive markets up further near-term (our upside scenario is 9,700) as long as there are no global macro shocks; declines in global risk appetite; and immediate local negative catalysts such as outcome of assembly elections, especially in Uttar Pradesh, disappointment as regards 4QFY17 earnings," they add.
Going ahead, analysts at Deutsche Bank expect the mutual funds to emerge as a key institutional market driver and see more headroom for the mid-cap stocks.
"Mid-caps should attract a disproportionate amount of funds from domestic institutional investors and should continue to outperform large-cap indices. Our top mid-cap picks are CESC, Petronet LNG, Shriram Transport Finance and UPL," says Abhay Laijawala, head of India research at Deutsche Bank Group.