Star performers: Stocks that rallied over 100% since August

Sustained capital inflow from foreign institutional investors (FIIs) on expectations of a favourable outcome of the general elections has seen 176 stocks from the BSE-500 index rally over 50 per cent compared to August 28, 2013, when the benchmark indices — the S&P BSE Sensex and the CNX Nifty — touched their respective 52-week lows in intra-day trade.

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Of these 176 stocks, 53, including Adani Enterprises, JSW Steel, Housing Development and Infrastructure Ltd, Crompton Greaves, Ceat, Amtek Auto, TVS Motor Company, Voltas, Apollo Tyres and Aban Offshore, have rallied over 100 per cent. Larsen & Toubro, Axis Bank, BHEL, ICICI Bank and Maruti Suzuki from the 30-share S&P BSE Sensex have gained 55-90 per cent during the period.

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In comparison, benchmark BSE Sensex and the BSE 500 index have gained 26 per cent and 31 per cent, respectively, compared to the closing levels on August 28 last year. The mid-cap and small-cap indices have rallied about 40 per cent and 45 per cent, respectively, during this period.

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Ravi Shenoy, assistant vice-president (mid-cap research), Motilal Oswal Securities, says: “I don’t think anything has changed fundamentally. It’s liquidity that is chasing these stocks.

In addition, I think investors are now entering the market and buying stocks that have not rallied much. As long as the overall sentiment is positive, mid-cap and small-cap stocks should continue to do well.”

Kishor Ostwal, chairman and managing director, CNI Research, says, “The election outcome is a major driver.

I feel the worst for the Indian economy is behind us.

Inflation seems to be under control and a recovery in manufacturing could be the key driver.

Indian markets did not participate in the global rally earlier; therefore, they are now playing catch-up.

The fact that Indian markets consolidated through the last two years suggests it is now ready for the cyclical bull market…

The best performers will be mid- and small-caps, which are still languishing compared to their large-cap peers. I feel FIIs will turn their attention to the mid- and small-cap segments very soon.”

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Strong flows

FIIs continued to invest in India, with their net investment since September 2013 at about Rs 82,000 crore ($13.33 billion), according to Securities and Exchange board of India data.

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Investor preference has shifted from defensives such as fast-moving consumer goods, health care/pharma and information technology (IT) to the high beta and policy reform-oriented capital goods and banking. Stocks from these sectors have seen a sharp rally, with the S&P BSE capital goods index and the BSE Bankex gaining 78 per cent and 48 per cent, respectively.

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Among the mid-cap pack, TVS Motor Company, Apollo Tyres, Arvind Limited, Voltas, HDIL and Balkrishna Industries have rallied about 100 per cent.

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Analysts at Angel broking are positive on several cyclical sectors.

“Banks, automobile, capital goods, infrastructure and other cyclical sectors are likely to benefit substantially from an economic upturn, policy reforms and declining inflation.

Moreover, these sectors are still trading at highly beaten-down valuations, making it an ideal time to invest in these,” they said in a recent report.

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Shenoy names Wabco India and Repco Home Finance as his top mid-cap picks.

Though, he prefers large-caps such as L&T and IDFC in the infrastructure space, he likes Action Construction in the small-cap segment.

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Also, “Shree Cement and Madras Cement are our picks in the cement sector. However, if one has risk appetite, he/she can look at Prism Cement for a turnaround. In the banking space, YES Bank can be a good momentum play. We also like Deepak Fertilisers,” he adds.