The adoption of cloud and demand for work-from-home solutions sent IT stocks rallying in the pandemic year while hopes of a rebound in auto sales, and the comeback of cyclical counters as a theme, pushed auto and capital goods stocks higher during this period, data compiled from corporate database AceEquity suggests.
Utility stocks gained, so did healthcare stocks, in the pandemic year. But the biggest defensive bet, FMCG, had no taker thanks to high valuations.
The year saw gradual unlocking from June 8, 2020, followed by billions of dollars in stimulus – both in India and globally, and a strong recovery for most sectors to pre-Covid levels. January 16, 2021 saw the rollout of the pan-India vaccine drive, but the recent second wave of Covid-19 infections hit the sentiment a bit.
As the challenging year is drawing to an end, the BSE Metals index is up 150 per cent at 14,291.59 from 5,713.28 at the end of FY20. This was double the 70 per cent return delivered by the benchmark Sensex index. Metals stocks JSPL zoomed 315 per cent for the year, followed by Vedanta (255 per cent), Hindalco (245 per cent), SAIL (244 per cent), JSW Steel (219 per cent) and Tata Steel (201 per cent).
Brokerage Motilal Oswal expects the margins for steel companies to remain strong in the near term due to multi-year high spreads. “With higher LME prices, margins for aluminium and zinc producers should rise. This should help companies reduce debt significantly,” the brokerage said.
The BSE IT index surged 108 per cent for the year. Reliance Securities said that 70 per cent of enterprises globally are at an early stage of digital adoption, which is a huge opportunity for Indian IT vendors.
The brokerage said that strong medium-term growth visibility, resilient business model and consistent cash return policy warrant premium valuation for top four IT firms (TCS, Infosys, HCL and Wipro), and that it foresees a 32-38 per cent upside in the stocks from the prevailing levels.
Data showed HCL Tech climbed 127 per cent in the year gone by, Infosys 114 per cent, Wipro 112 per cent, Tech Mahindra 77 per cent, and TCS — the country’s largest IT company — 74 per cent.
The automobile space has been another major sectoral performer, with the BSE Auto index rallying 107 per cent to 22,253 from 10,746. Among auto stocks, Tata Motors rallied a whopping 329 per cent, followed by M&M (179 per cent) and Ashok Leyland (165 per cent). Shares of two wheeler makers TVS Motor, Hero MotoCorp and Bajaj Auto rose 80-100 per cent. Just like TCS in IT, here the market leader, Maruti Suzuki, underperformed its peers with a rise of just 61 per cent.
The year also saw realty stocks making a comeback. Chakri Lokapriya, CIO & MD of TCG AMC, said that real estate companies are still facing labour issues, and are not at their pre-Covid levels from that perspective.
“But with an affordable housing bracket doing well. Low interest rates have been a big catalyst. Well-run companies such as Sobha and Prestige are seeing significant traction. A couple of REIT listings have also done well. This is a sector which is in recovery, and still in early stages of recovery. Some more quarters of good news are still ahead of us,” said Lokapriya.
Sobha shares have climbed 229 per cent in FY21. Those of Godrej properties jumped 193 per cent. DLF, Indiabulls Real Estate and Prestige Estate rallied between 81 per cent and 106 per cent.
Meanwhile, the BSE Capital Goods index gained 93 per cent in the pandemic year. Amond the index components, Adani Green zoomed 639 per cent, followed by Lakshmi Machine (197 per cent), Bharat Forge (153 per cent) and BHEL (137 per cent). Engineering major L&T gained 77 per cent.
“Larsen is the bellwether when it comes to the capital goods sector in India. We are in the early stages of recovery of the investment cycle. As this cycle gains more prominence, there are many more companies across the sector which will also be significant beneficiaries of cycles,” said Pankaj Murarka of Renaissance Investment Managers. He suggested stocks such as Thermax, Bharat Forge, KEC International and Kalpataru as the likely beneficiaries.
