Weaklings outperform BSE Sensex as market’s high tide carries all

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Adani Enterprises also witnessed strong gains of the order of 77% during the period (Reuters) Adani Enterprises also witnessed strong gains of the order of 77% during the period (Reuters)
SummarySeveral leveraged infra, construction majors from rate-sensitive sectors beat BSE Sensex.

While a handful of blue-chip index heavyweights have pushed the BSE Sensex to an all-time high in the last three months, the latest market rally has also seen stocks of a number of fundamentally weak companies outperforming the benchmark index.

Markets Top Gainers, Markets Top Losers

Since mid-August this year, the 30-share Sensex has gained 3,349 points, or close to 19%, and touched a record high of 21,326.42. Nearly 60% of these gains were contributed by seven index stocks, which collectively added 1,979 Sensex points. However, across the broader market, 57 companies from the BSE 100 universe outdid the Sensex during the period. Interestingly, almost half of these outperformers belonged to capital-intensive and interest rate-sensitive sectors that are impacted by weak economic fundamentals.

The list includes highly leveraged infra and construction majors that witnessed a sharp fall in their profitability during the September quarter, such as JP Associates, GMR Infra, HDIL and Suzlon energy. The stock prices of these companies, which collectively have a debt burden of more than R1.2 lakh crore, have rallied 80%, 77%, 64% and 46%, respectively, as of Tuesday from their August 2013 lows. Adani Enterprises, which turned loss-making during the last two quarters, also witnessed strong gains of the order of 77% during the period.

Many of these stocks, which have outstripped sensex’s returns by two to four times, are considered high-beta stocks and, hence, tend to move more sharply than the benchmark. Beta is a measure of volatility that represents a stock’s tendency to respond to the swings in the market; a number higher than 1 indicates that the stock’s price volatility will be higher than that of the benchmark’s.

Capital goods and engineering majors, Siemens, BHEL and Crompton Greaves, which had fallen to their multi-year lows in August, have since gained 45-63% as investors saw value in these stocks at lower levels.

BHEL, in particular, witnessed strong buying interest as it fell to its lowest in eight years. While the company reported weak operational and margin performance during the September-ended quarter, gains from ‘other income’ boosted quarterly profits. However, analysts continue to expect earnings to remain flat due to lower order inflow visibility and rising competition from Chinese players. Ambit Capital in a recent note called the stock a “value trap” and maintained its Sell rating on the stock. Ambit expects a further decline in the

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