Export-driven stocks ride on weak rupee, emerge as top Sensex performers

Written by fe Bureau | Mumbai | Updated: Dec 27 2013, 17:09pm hrs
TCSTCS is the only Indian company, which boasts a market cap of more than Rs 4 lakh crore.
The year 2013 was underlined with a deteriorating economic profile of India. Export-oriented companies that were riding high on the falling value of the rupee emerged as the top performers in the equity market in 2013.

Unlike the previous two years, when consumer goods and banking stocks crowded the list, five of the nine bluechips that have outdone the benchmark returns of 8.5% in 2013 so far, earned more than 70% of their revenues outside India in 2012-13. These frontrunners from the Sensex universe include leading IT, Pharma and some auto companies that have benefited from a depreciating rupee and faster delta of growth recovery in the developed markets. The rupee not only plunged to lowest level of 68.82 against the dollar this year but is also set to end the year with a 13% decline.

Although the general market participation remained low, with retail investors still shying away from fresh investments, FIIs also focused their portfolios towards the top bluechip companies. As a result, even as only nine largecaps beat the market returns, six of them reported more than three-fold rise than Sensex. This is a stark contrast to 2012 when the number of outperformers (15) remained high but the maximum gain provided by a single stock was capped at three times that of the Sensex. The market polarisation towards quality names pushed eight of these nine stocks to their all-time high during the year.

The list of outperformers is led by Tata Consultancy Services (TCS), the only Indian company which boasts a market cap of more than Rs 4 lakh crore. The IT major sustained its ability to correctly reflect the recovery in the global economy as its US dollar revenue growth managed to beat the street expectations in each of the last four quarters. During the year, TCS not only affirmed its position as the number one IT service provider of India but also strengthened its valuation premium to Infosys. On average it traded a 22% premium to the price to earnings multiple of Infosys and is likely to close the year with a 68% gain, an eight-fold return to that of the Sensex.

After following a downward trend for nearly two and a half years in which failure to meet quarterly numbers and forward guidance provided a lot of volatility, the Infosys stock is on a firm footing since May 2013. The stock has rallied nearly 61% in the last eight months after its revenue growth for the June and September quarter meet the street expectations. For the year so far the stock has added 53%, reporting its best annual returns in four years. The street also seems to have acknowledged the Infosys managements policy to remain conservative in providing for the fiscal revenue growth guidance. However, the increasing number of exits of the senior executives of the company, after its founder Narayan Murthy returned to helm the IT giant, is regarded as a concern by the experts.

Tata Motors, the top performing stock of 2012 maintained a lead over the Sensex returns even in 2013. The stock managed a 19% gain in the year as investors continued to price in the strong sales growth of auto majors luxury division, JLR. It appears to be the most recommended stock in the last one year with nearly 82% of analysts that rate the stock assigning a buy rating as per Bloomberg. Although Maruti Suzuki India is focused towards the domestic market, the impact of a slowing economy was offset by the weakening Japanese Yen. The auto major has managed to deliver strong profit margins due to cheaper yen denominated imports.

The top gainers of 2013 also include two Pharma players, Sun Pharmaceuticals Industries and Dr Reddys Laboratories which have yielded close to 57% and 37% in the year. Depper product pipelines and sustained earnings visibility have strengthened the defensive nature of these stocks.

Amidst a slow-down in the volume growth that reduced their investment appeal in the second half of the year, FMCG giants

ITC and Hindustan Unilever were also amongst the top bluechip gainers. Both the stocks hit their all- time in July even as they are likely to end the year with modest gains of 10% and 8%. In case of HUL, its parent company Unilevers open offer to increase its stake in the Indian unit to up to 75% turned out to be a trigger for the stock to rise more than 54% between April and July. Notwithstanding the slow-down impact analysts and investors seem more enthused about ITC as the company has managed to overcome falling volume growth by raising prices of its products.