NetScribes/Sourav Mukherjee
Making money on the stock market isn't that easy after all. Take year 2000 as a test case.
If you had punted on 'ICE' stocks at the beginning of the year, you could have lost piles of dough or could have gained handsomely - Hughes Software crashed 59 per cent through the year, but Himachal Futuristic gained 88 per cent.
Had you picked old economy, again you could have gone either way - Reliance Industries gained 45 per cent, but over the same period Larsen & Toubro shed 65 per cent.
If you had bet on media, you would probably be not in a position to read this analysis now.
A NetScribes study of gainers and losers among companies with a market capitalisation in excess of Rs 5 billion clearly shows that individual performance - and not industry waves - directed the fortunes of companies on the stock markets.
Those that went up on speculation and industry euphoria came tumbling down once Nasdaq caught a cold. Managements that failed to deliver were given the thumbs-down, while those that acted got rewarded. That's why individual performance - whether it be in terms of higher profits, bolder initiatives, or mergers and acquisitions - finally took the cake.
THE TOP TEN
ICICI Bank tops the heap, having gained 115.07 per cent between December 30, 1999 and December 29, 2000 - the last two trading days of the years. The scrip was hovering at Rs 90 in end-1999 only to bounce to Rs 150.55 in end-2000 on the back of the proposed merger with Bank of Madura and rumours of other imminent takeovers. The fundamental tale is that ICICI Bank never forgot that sentence in its SEC filing that stated that it was on the lookout for takeovers.
The second to tenth slots have been taken by HDFC (89.46 per cent), UTI Bank (88.75 per cent), Himachal Futuristic (88.35 per cent), Raymond (80.68 per cent), Great Eastern Shipping (77.72 per cent), Reliance Industries (45.06 per cent), HDFC Bank (37.77 per cent), Tata Power (35.59 per cent) and ITC (34.89 per cent).
While this does give us a varied sample, UTI Bank, Raymond and Great Eastern Shipping are different cases, as they have relatively lower market capitalisations of between Rs 5 billion and Rs 10 billion and are not considered 'hot stocks'. Their role in providing a direction to the future of the market, therefore, is very limited.
On the other hand, the real story is that of HDFC, RIL, HDFC Bank, Tata Power and ITC, all of which are so-called old economy stocks. But the bounce-back in these stocks has nothing to do with a general buoyancy in old economy stocks in general. It's more about the old adage that revenues and fundamentals will drive the markets.
For HDFC, it's a confirmation of its leadership position in the housing finance sector that continues to grow at 30 per cent annually. For RIL, the cue is the fact that with all its projects having been completed, it's time to rake in the profits. For HDFC Bank, it's its leadership position in the banking industry along with ICICI Bank. For Tata Power, the plus was the merger of its three constituents into the composite whole. And for ITC, despite the stiff taxes, it is in a business that refuses to buckle down under pressure.
The M&A trick helped UTI Bank gain ground with talks of DBS of Singapore picking up a stake. It also helped Raymond, that sold its cement division to Lafarge of France and spun off its steel division into a joint venture with EBG Gesellschaft, a subsidiary of Thyssen. Great Eastern Shipping gained immensely from a turnaround in the industry, while ITC Bhadrachalam gained on higher paper prices and a sudden bull run on paper scrips. In short, each one of these gainers had an individual story behind their gains.
THE BOTTOM OF THE HEAP
The top losers are also as varied. Media companies top that list - Pentamedia Graphics (down 77.93 per cent) and Zee Telefilms (-74.66 per cent). They are followed by VisualSoft Technologies (-72.36 per cent), HCL Infosystems (-69.94 per cent), Silverline Technologies (-69.38 per cent), L&T (-64.8 per cent), Mahindra & Mahindra (-64.71 per cent), Ashok Leyland (-61.64 per cent), Novartis (-59.09 per cent) and Hughes Software (-58.9 per cent).
These companies can be slotted into three sets: those that shouldn't have risen any way, those that got hit by external factors, and those that were pulled down by internal factors.
THE INFOTECH PUNT
Pentamedia Graphics, VisualSoft Technologies, Silverline Technologies, HCL Infosystems and Hughes Software are classic cases of New Age stocks that had become punters' delight. Once Nasdaq started melting and the warnings started coming in, these stocks had only one direction to go - south. In fact, most of these stocks gained heftily before plummeting to the current levels.
Two auto sector stocks - M&M and Ashok Leyland - were direct victims of slowdown in the industry in 2000. Hikes in input costs that could not be passed on to customers due to falling demand ensured that the auto majors figure in the top losers chart.
FUNDAMENTAL ISSUES
Zee Telefilms was a case of classical management disaster: Failure to raise funds, retain people and draft a strategy to counter Star TV's grand success with Kaun Banega Crorepati. The Zee management compounded matters when they got into a tussle with a Bombay corporate house. It is rumoured that this corporate house bear shaved almost three-fourths off the stock. L&T was no different - highly indecisive on its future strategy for the cement division, this company also got into a tangle with a corporate group and saw its shareholder wealth plummet.
What then is the moral of the story? What should one keep in mind while investing in 2001? For one, 2000 has clearly shown that even though industry fortunes do matter, the key is management performance and agility. Just by being in the IT sector, scrips cannot gain 100 per cent overnight. That's why despite the meltdown, Infosys was down only 21 per cent against Silverline's 69 per cent. That's why Infosys is still a buy on the 2001 list, while Silverline isn't.
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