After the collapse of global stock markets and economic turmoil in 2008, 2009 came with hope. While we did not see the stock market highs of 2007, we managed to gain back most of the lost ground of 2008. In this article, we discuss the top 5 Sensex performers taken from different sectors. In other words, the stocks have been chosen in such a way that if a stock from a sector has come on the list, we have not taken another stock from the same sector and instead, chosen to focus on different sectors.
Tata Motors (Returns in – 2008: -79%, 2009: 398%)
The stock rose like a phoenix to take the spot of the number one Sensex performer of 2009. Tata Motors gained a massive 398% during the year after being one of the underperformers for 2008. Reason quite simple. The company acquired Jaguar and Land Rover in the midst of a deteriorating macro environment. The big ticket acquisitions stretched the balance sheet of the company. With the possibility of a recession, the investors got jittery and bailed out of the stock. However, the quick economic recovery and the fact that the company could raise funds during crunch times enabled the stock to make an equally quick comeback. The comeback is not complete though. The stock is still some distance away from touching its high of the previous 3 years. But if the fundamentals were to continue improving, it would soon be there.
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Hindalco Industries Limited (Returns in – 2008: -76%, 2009: 211%) and Tata Steel Limited (Returns in – 2008: -77%, 2009: 185%)
With gains in the region of 200%, Hindalco and Tata Steel are amongst the top ten Sensex performers during the year. We have decided to club the two together as we believe the factors that first led to the precipitous decline in their stock prices and then a meteoric rise in 2009 were extremely similar. Infact, both these companies could be called as the epitome of what happened the world around at the peak of the sub-prime boom and then in its devastating aftermath. On second thoughts, even Tata Motors, the top performer for the year, would fit this description.
When liquidity was abundant, both these companies went in for leveraged acquisition hoping to pay off the excess debt from the robust cash flows that the liquidity led commodity boom was bringing to them.
But that was not to be. The party came to an abrupt end long before these companies anticipated and what more, was of much worse magnitude then they would have ever imagined. And investors as we all know, do not like companies saddled with truckloads of debt in a deflationary environment. Little wonder, the stock prices hit the depths of despair.
That in a nutshell, the period before 2009 was all about. But what explains the meteoric rise in stock prices in 2009? Two things. First, the ability of these companies to raise funds even during bad times and second, a well coordinated effort by governments across the world to undertake stimulus measures, which made recovery possible far sooner than anyone expected. Any lessons in this for investors? Surely. First, exit companies that leverage balance sheets a great deal and second, do not wait for the turnaround to happen if the company is available at dirt cheap valuations.
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Tata Consultancy Services Limited (Returns in – 2008: -56%, 2009: 214%)
TCS, the poster boy of Indian IT industry gained a gigantic 210%. It is one of the top 5 performers of 2009 on Indian stock markets. This stellar performance is in line with the overall turn-around witnessed by the Indian IT industry which gained around 127% in 2009, outperforming the BSE-sensex by a decent margin. TCS delivered industry leading performance on account of higher volumes as well as better profitability as compared to its peers. Its superior capabilities in a wide range of industry verticals like banking and financials, manufacturing, engineering, retail and utilities helped it garner new clients. Its focus on the emerging economies like India and China also helped it de-risk its revenues from the clients in the West. The company’s leading presence in domestic e-governance projects brought newer businesses.
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Larsen and Toubro Limited (Returns in – 2008: -81%, 2009: 117%)
Amongst engineering and capital goods stocks in the BSE Sensex, L&T has turned out to be the top gainer for 2009. At the start of the 2009, the stock traded at about Rs 775. In a world where banks were being almost begged by the RBI to not stop lending, it goes without saying that the outlook for investments, and consequently the outlook for a capital goods company like L&T, was considered to be dismal. It is this outlook that led L&T’s stock price to fall down to a low level of about 15 times its FY09 earnings. Once this outlook began to change with the easing of the credit crisis and the favourable outcome of the country’s general elections, L&T’s earlier beaten down price laid the ground for a swift and substantial recovery. The result? The stock has ended the year with a swanky gain of about 117%, thus making it to the list of one of the top gainers amongst the Sensex companies for 2009.
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