A quick look at the year on year returns in mid December from the previous year shows that there are only 69 companies or 2.77% of the traded companies have had a positive return. This time in the previous year, in December 2007 there were around 2097 companies or 81.9% of the traded companies had shown positive returns over the previous year. In fact, in December 2007 there were 820 companies that had more than doubled in price over the previous year. This time around there are just about a dozen penny stocks that have managed to double in price. The tables have turned on several stocks as well.
The trend in December 2007 was towards betting on real estate firms, technology, commodity and telecom stocks, the old favorites from the FMCG sector were languishing. This time around, some of the gainers include companies that, once upon a time, were the favoured few. Hindustan Unilever, Glaxo Smithkline Pharma, Colgate Palmolive and Castrol India make a comeback as defensive plays where earnings growth will be sustained despite a slowdown and adverse conditions. Even in a slowdown, people will brush their teeth and use soaps, says an analyst with a overseas investment firm.
Incidentally, both Hindustan Unilever and Hero Honda featured amongst the companies with negative returns in December 2007 and now are amongst the few gainers. One of the biggest gainers in December 2007 was Pioneer Investment Corp with 1,399% gains and was quoting at around Rs 646 is now at the bottom of the table having lost more than 90% and is now quoting at around Rs 15. Fund managers and investment experts reckon that there is a huge portfolio reallocation happening at the moment and the focus is now on sustained growth rather than inconsistent surges. Visibility of earnings and sensible expansion are expected to gather more attention than wild announcements. Hence, the focus will tend to be on consumer non-durables, commodity consumers rather than commodity producers.
A recently released Wealth Creation report by Motilal Oswal Securities says, We have probably seen the market bottom at Sensex levels of 7,700. We expect unprecedented reduction in interest rates. We see distinct possibility of earnings decline over the next two years, contrary to consensus estimates. They also mention that the earnings to bond yield is currently at 1.4 times is attractive zone and sets the stage for a sharp 30-40% recovery.