Stock returns in 2009

Mid-cap indices out-performed, but not all mid-cap stocks did. The losers' list had a clear sector theme, but the winners' didn't. Value investing delivered more than growth investing. These were some of the trends that emerged this year, as the stock market did a complete volte-face to push up benchmark indices such as the Sensex and the Nifty by over 60 per cent in 2009.
To sign off for the year, we took a look at a simple theme — stock price returns (for the BSE-500) from January 1 to December 18 (the cut-off date) and the trends they throw up.
Gainers: No sector bias
Among the stocks that make up the BSE-500, nearly half doubled from January 1 till now. A good 13 per cent of them gained more than 200 per cent, while 57 per cent outpaced the BSE-500. Indeed, the top gainer, Ahluwalia Contracts, zoomed six-fold, while Aurobindo Pharma and McLeod Russell shot up about 400 per cent. There was a clear lack of sector bias in the top ten performers, with sectors ranging from construction and pharmaceuticals to finance and tea making it to the top.
The top twenty performers, though, saw a number of IT stocks — surprising in a year when the sector remained on tenterhooks about the fate of global IT spending. Other oft-repeated sectors include steel and automobiles.
Only one in 20 stocks now trades at prices below the levels at the start of the year. For instance, Cranes Software dropped 57 per cent, while REI Agro is floundering 38 per cent below its January price. Stocks that underperformed did show a sector bias with a predilection to telecom and retail. About one in five stocks that make up the bottom 20 of the universe operates in the telecom space.
Sector winners and losers
If you were looking to pick an out-performer in January this year, you would have maximised your chances by selecting automobile, steel, sugar or metals.
Nine out of ten automobile stocks in the BSE-500 beat the index returns and these also, at the least, doubled during the year. Steel has similarly out-performed — nine in ten stocks bettered the broader market. Other sectors with glowing performances are metals and minerals and sugar, with all stocks in these sectors at least doubling their prices.
Healthy returns, even if not at the levels recorded by automobile or steel companies, were notched up by sectors such as cement and IT, where seven of every 10 stocks beat the broader market. Banking, pharma and finance stocks were middle-of-roaders, with just half the companies delivering returns above broad market.
Investing in telecom, refineries and retail stocks increased your chances of picking a lemon, with all three sectors throwing up just a single outperformer.
Mid-cap indices outperformed
As is the case with every bull market, mid and small-cap indices raced ahead of the Sensex or Nifty this year. But as an investor, you would have had a tough time matching up to this performance.
Less than half the stocks in the mid-cap space and only 65 per cent of those in the small-cap space beat the larger indices. Investors thus had to be choosy when it came to selecting stocks, even within the wider mid-cap and small-cap areas. Indeed, a higher number of small-caps stocks declined during the year compared to both large- and mid-caps.
Small-caps in the BSE-500 averaged a 104 per cent return. This, however, is lower than the 107 per cent returned by the BSE small-cap universe. Similarly, while the mid-cap set in the BSE-500 clocked a 93 per cent average gain, the BSE Midcap index was a step ahead, with a 95 per cent gain.
Valuation trends
With investors just recovering from the carnage of 2008, it is no surprise that they paid close attention to PEs while picking stocks. 2009 was a year in which value investing outdid growth investing.
Stocks that traded at PEs of less than 15 times in January galloped to average a 119 per cent return. Almost seven in ten stocks in this group registered returns superior to the broader market's.
In contrast, stocks priced between 15 and 20 times earnings averaged a 70 per cent return, a figure better than the stocks at higher, plus-20 times valuations. Strangely enough, with average returns of 78 per cent, stocks of companies that sustained losses, rendering computation of their PE impossible, did better than those valued above 15 times.
With low PE stocks getting re-rated, their valuations have shot up, rendering them quite expensive in view of their fundamentals.
For instance, Brigade Enterprises was at a PE of 7.4 times in January, moving to about 55 times by the end of the year. Delivering on such high valuations may thus pose a challenge from here on.
Price trends
Retail investors have often identified penny stocks that transformed into multi-baggers. But, going by the performance of the NSE-listed stocks, this year you would have been better off sticking to stocks with higher absolute prices.
While just about half the stocks with prices of less than Rs 10 did overtake returns of the CNX-500 from January 1 to now, with average returns at 85 per cent, those priced higher turned in a better showing. Stocks priced above Rs 50 averaged 92 per cent in returns, and had six in every ten stocks beating broad market gains.
via BL