Nine stocks that withstood the bear market

While the recent bear phase left the valuations of all listed companies in ruins, there were a few stocks that defied the recession and managed to hold on their own steam.

We drew up a list of these stocks and also identified the mutual funds which managed to spot these and held on to them through the tough times. For this, we looked at the 500 stocks which comprise the BSE 500 index over the bear phase commencing January 8, 2008 to March 31, 2009.
Stocks that stood firm

Of the 500 stocks under review, we found mere nine scrips which stood firm during the market mayhem. These are: Hero Honda, Shree Ashtavinayak Cine Vision Ltd, Lupin Ltd, Cipla Ltd, Castrol India Ltd, Nestle India Ltd, Hindustan Unilever Ltd, GlaxoSmithKline Consumer Healthcare Ltd and GlaxoSmithKline Pharmaceuticals Ltd.

Hero Honda Motors, as on the first day of this phase, was quoting on the Bombay Stock Exchange at the price of Rs 690.10 and climbed to 1,070.15 by end March 2009, growing by a whopping 55.07% on an absolute basis. It wasn't smooth sailing for Hero Honda Motors as the gloom surrounding the auto sector imposed its share of edginess in prices till October 2008; however beyond that there was a consistent rise in quoted prices.

At the same time, Shree Ashtavinayak Cine Vision, Lupin and Cipla grew by 19.55%, 13.03% and 5.06% respectively. In the case of Shree Ashtavinayak Cine Vision Ltd, prices rallied from the last week of January 2008 to the first week of August 2008, thereafter the scrip witnessed a drop in prices till October 2008. Since then, it has again displayed consistent growth in prices.

On the other hand, GlaxoSmithKline Pharmaceuticals has had a tough time with large fluctuations in the movement of quoted price; the scrip did manage to remain in the green with a marginal gain of 0.29%.

Who picked them?
Here comes the tricky question. Which schemes managed to pick these stocks? We looked at only the schemes that held these scrips consistently during the bearish phase for a period of at least 12 months of the 15 months under consideration. Surprisingly, only 17 schemes of the 367 schemes (includes all schemes that invest in equity including hybrid schemes barring index funds) invested consistently in Hero Honda!

In fact, Shree Ashtavinayak Cine Vision, which grew by 19.55% in the bearish phase, was not picked by any of the fund houses. Shree Astavinayak Cine Vision has a market cap of Rs 561 crore (as of May 27, 2009), and over the quarter ending September 2008 and December 2008, the company showed a growth of whopping 551% and 498% respectively in net profit. However, prior to quarter ending September 2008, the company consistently witnessed a loss for three quarters, which is possibly the reason why funds stayed away from the stock. On the valuation front, based on CMIE data, the stock is currently available at the price earnings (PE) ratio of 28.37 times which is significantly higher than the PE ratios of BSE Smallcap (13.05 times) and BSE Midcap (15.86 times).

We also looked whether these schemes which managed to pick maximum number of these companies performed well. In the tax-planning category, the stock picking clearly worked in favour of these schemes. However, in the equity diversified category while most of the schemes managed to make it to the top quartile, three schemes could not translate their stock picking benefits into better performance. But, for most the stock picking was beneficial in keeping losses low.

The road less travelled
It is at times like these that stock picking assumes greater significance. It is for the fund management team to sift through and discover such gems and have enough conviction in their performance. Therefore, getting a sector call right is not enough; within these, picking the right driver is of more importance.

Having said that, while some of these companies may look like obvious choices that an investment manager would be reviewing, the past performance of these companies on the bourses shows that spotting them was not all that simple a task. In 2007, out of these nine stocks, Castrol India, with the absolute returns of 58.24%, was the only stock which outperformed BSE Sensex.

While scrips like Hero Honda Motors (best performer in bearish phase), Cipla, Hindustan Unilever and GlaxoSmithKline Pharma even faltered in 2007. Lupin grew by only 3.53%. Shree Ashtavinayak Cine Vision was listed only in the middle of 2007. GlaxoSmithKline Consumer Healthcare and Nestle India rose by around 32% in 2007. The performance of some of these firms was also not very inspiring over the previous few years either.

At our end, we look forward to investment managers picking performers with a better frequency than they have. The numbers reviewed here are not very inspiring for an investor.