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Recovery's Weird Progress

During the global meltdown, some stocks have been powered by factors that have their own timeline

This article first appeared in the October issue of Wealth Insight magazine. It tracks the peculiar movement of certain stocks in the pre- and post-meltdown period.

The global financial crisis looks like a bad old dream in the current gung-ho atmosphere that Indian and world stock markets are functioning under. But overall, there is a need to temper the euphoria in certain stocks, while this is the time to celebrate for others, and for some assorted types the party time was very much during the slowdown. Wealth Insight takes a look at the recovery process since the great fall of 2008.

We perused all the companies listed on the Bombay Stock Exchange (BSE) that have a market capitalisation of over Rs 500 crore as on September 14, 2009 and found that out of a constellation of 577 there are 473 such stocks that have still not reached their previous highs.

Also, the Sensex is still 22 per cent down from its previous all-time high peak that it climbed to on January 8, 2008 at 20,873 points.

Nevertheless, there have been gainers aplenty, as many as 100 stocks have breached their old marks and climbed up to new peaks, no doubt powered by the current bull run.

Intriguingly, there are four stocks, Spice Communications, Jaybharat Textiles & Real Estate, Trinethra Infra Ventures as well as Lakshmi Energy & Foods, which reached their all-time highs much before the bull rally. However, these stocks didn’t go up in the bull run at all, in effect, their best returns were confined to the period the markets were down and out i.e. between November, 2008 and March 9, 2009.

Those stocks that touched their all-time highs in the current rally are three banks, Dhanalakshmi Bank, Punjab National Bank and Union Bank of India — even though the BSE Bankex is still wallowing in negative territory by as much as 30 per cent from its all-time high.

The case of the Information Technology (IT) industry looks altogether different. There were  seven IT companies that reached their new peaks in the bull run of 2009. And of them, Infosys was the only large-cap. Despite gaining over cent per cent in the bully rally of 2009, the IT index is still below its all-time high by as much as 22 per cent.

Pharma stocks and their index has been performing queerly too. There were 15 stocks that made a new high in this bull run, but the index is in the red under both the conditions — it is down from it’s all-time peak, a time when defensive stocks were acquiring popularity. It is in red (by 9%) even if looked at from January 7, 2008.

Comprehensive relief, to a large extent, was provided by just one sector’s stocks — auto. This performance was supported by Mahindra & Mahindra, Maruti Suzuki and Bajaj Auto, all of whom, reached new highs in the current rally.

While the auto index excelled, the FMCG sector jumped simply because it is part of the defensive stock constellation, to which investors’ run for safety when markets crash. The BSE FMCG index saw its all-time high on July 31, 2009 which was higher than where it stood on January 7, 2008. Among individual stocks in the FMCG sector, there were many that reached their new all-time highs, like P&G Hygiene & Health Care, Dabur India, HUL and Colgate-Palmolive (India).

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