Bumper stocks that doubled in a bad, bad year!

In the Nifty 100 alone there are over 40 stocks that have more than doubled from the lows of 2020. We have identified 25 stocks that could be classified into 5 broad themes explaining their stock prices doubling.

Sep 04, 2020 09:09 IST India Infoline News Service

It is well documented that Nifty bounced 51% from the lows of March. However, the real action has been in specific stocks. In the Nifty 100 alone there are over 40 stocks that have more than doubled from the lows of 2020.

It is a lot tougher to identify themes when you go beyond the top 150-200 stocks as many are highly speculative. Hence we have restricted our analysis of Bumper Stocks to just the Nifty 100. We have identified 25 stocks that could be classified into 5 broad themes explaining their stock prices doubling.

Theme 1: Agriculture and Rural resilience

This theme is about stocks linked to the agricultural sector in India and hence shown the maximum resilience.
Stock CMP (Rs.) 52-W High 52-W Low Price / Low Ratio Driving Theme
Escorts 1,158.10 1,210.00  450.50  2.571 Agri/Rural
M&M 612.95  648.60  245.40 2.498 Agri/Rural
Muthoot Finance 1,138.50 1,405.75  476.80 2.388 Agri/Rural
UPL 495.45 617.75  240.15 2.063 Agri/Rural
 Data Source: NSE (CMP 01-Sep)

Tractors makers, M&M and Escorts, have been big beneficiaries of the rural demand theme. Q1 GDP showed 3.4% positive growth in agriculture when overall GDP was down (-23.6%). To an extent, the agri sector has been less vulnerable to COVID-19 and the impact on rural purchasing power has been limited.

Muthoot Finance was a big gainer on strong gold prices but also a surge in rural demand from households and small businesses for gold loans. UPL has been a direct beneficiary as record Kharif this year supported by a good Rabi, promises big demand for agrochemicals.

Theme 2: Defence and debt reduction

All four companies identified in the table below are in the midst of strategic debt reduction. Interestingly most of them have a defence story too.
Stock CMP (Rs.) 52-W High 52-W Low Price / Low Ratio Driving Theme
Bharat Forge 493.95 533.90 207.50 2.380 Auto/Defence
Motherson Sumi 112.60 151.00 48.65 2.314 Auto/Defence
Tata Motors 144.00 201.70 63.50 2.268 Auto/Defence
Tata Power 59.15 68.85 27.00 2.191 Auto/Defence
Data Source: NSE (CMP 01-Sep)

Auto stocks were in a long-term downtrend and the pandemic gave them an opportunity to bounce back. The lockdown ensured that the demand/supply mismatch was rectified and pressure on auto dealers reduced. Most players also have a strong defence franchise.

But the bigger story is of strategic debt reduction. The long-term debt reduction plans of the Tata Group are well documented. Motherson Sumi and Bharat Forge are also embarking on becoming low-debt even as Bharat Forge prepares for more defence orders.

Theme 3: Big Pharma makes a show
Stock CMP (Rs.) 52-W High 52-W Low Price / Low Ratio Driving Theme
Aurobindo            809.15                   967.50                  288.85                           2.801 Big Pharma
Cipla            734.00                   814.50                  355.30                           2.066 Big Pharma
Divi Labs        3,273.45               3,335.00               1,570.50                           2.084 Big Pharma
Glenmark            478.90                   573.05                  161.65                           2.963 Big Pharma
Jubilant Life            780.00                   909.00                  234.35                           3.328 Big Pharma
Syngene            475.00                   512.95                  212.55                           2.235 Big Pharma
Data Source: NSE (CMP 01-Sep)

The race for COVID vaccine meant that Indian scale and expertise could not be ignored. Secondly, licenses to manufacture Remdesivir and Favipravir were another big opportunity. API players promised to replace Chinese supply chains and FDA looked more benevolent!

Theme 4: Many good stocks got pulled down
Stock CMP (Rs.) 52-W High 52-W Low Price / Low Ratio Driving Theme
Coforge        1,916.35               2,079.00                  735.35                           2.606 Quality stocks
Emami            363.00                   383.00                  130.95                           2.772 Quality stocks
IndusInd            620.85               1,596.55                  235.55                           2.636 Quality stocks
IRCTC        1,359.50               1,994.00                  625.00                           2.175 Quality stocks
Naukri        3,394.00               3,584.40               1,581.10                           2.147 Quality stocks
Piramal        1,333.05               1,976.42                  606.85                           2.197 Quality stocks
Reliance        2,127.90               2,198.80                  866.98                           2.454 Quality stocks
Tata Cons            544.90                   561.40                  213.70                           2.550 Quality stocks
Data Source: NSE (CMP 01-Sep)

In any vertical fall, many of the quality stocks get pulled down with the tide. But markets were quick to realize the folly. Emami and Tata Consumer are still great consumption stories. IndusInd Bank and Piramal had already paid a steep price for some bad asset decisions. Reliance, IRCTC and Naukri were using digital platforms to redefine their business models. Coforge (former NIIT Tech) was in the salivating online education field. These stocks never deserved to correct so sharply in the first place.

Theme 5: China navigates the commodity story
Stock CMP (Rs.) 52-W High 52-W Low Price / Low Ratio Driving Theme
Hindalco            195.00                   221.20                     84.90                           2.297 Metals and China
Jindal Steel            215.60                   238.75                     62.00                           3.477 Metals and China
JSW Steel            287.10                   296.75                  132.50                           2.167 Metals and China
Data Source: NSE (CMP 01-Sep)

When political tensions were heating up on the Chinese border, Indian steel companies were boosting exports to China. China accounts for over 60% of world steel demand and drives global metal prices. A major stimulus from China and a blank cheque from the ECB changed the narrative for Indian metal stocks.

The moral of the story is that for those who worry about the pandemic and the correction, there have also been these doughty doublers during the last one year!

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