M&M sees biggest gain in shareholder wealth

The combined market capitalization of the Mahindra and Mahindra Group gained by 210% to Rs42,845.96 crore on Wednesday, from Rs13,809.02 crore on 31 December

Auto-to-software group Mahindra and Mahindra Ltd, run by the uncle-nephew duo of Keshub and Anand Mahindra, has emerged the biggest gainer in market capitalization in calendar year 2009 among India’s top business conglomerates.

Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. Sandeep Bhatnagar / Mint

The combined market capitalization of the Mahindra and Mahindra Group gained by 210% to Rs42,845.96 crore on Wednesday, from Rs13,809.02 crore on 31 December.

During this period, Sensex, India’s 30-stock benchmark equity index, rose 60.32%. Mahindra and Mahindra, the group’s flagship company, is part of the Sensex with a 1.44% weight.

Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. It provides a total value for the company’s shares and thus for the company as a whole.

Mint’s analysis of market capitalization took two sets of timelines into consideration. The first looks at the appreciation in market capitalization from the beginning of the calendar year to 10 June and the second tracks the effect of market capitalization on business groups since the election results on 16 May.

Since January, many Indian business groups, including public sector enterprises, have regained a large portion of the shareholder wealth they had lost following a sharp drop in the Sensex after touching a lifetime high of 21,206.77 points in mid-January 2008.

A study of the share price movements of the group companies of big industrial conglomerates since 15 May, ahead of the Sensex’s 2,100-point leap, shows that public sector enterprises were among the biggest beneficiaries of the market re-rating after the Congress-led United Progressive Alliance government came back to power with a comfortable majority.

Market capitalization of public sector enterprises appreciated 42.84% to Rs16 trillion from Rs11 trillion between 15 May and 5 June. There are around 70 listed public sector enterprises. The government’s stake in these companies varies between 20.18% and 99.59%.

The trigger for the appreciation in value for public sector enterprises stocks could be attributed to the President’s speech in the new Lok Sabha. President Pratibha Patil spoke about the right of Indian citizens to own a part of the shares in public sector undertakings, even as the government retained majority control in public sector enterprises.

“My government will develop a road map for listing and people-ownership of public sector undertakings while ensuring that government equity does not fall below 51%,” she said, outlining the agenda of the new government.

Prime Minister Manmohan Singh in his reply to the debate on the President’s speech in both houses of Parliament, made a strong pitch for divestment to raise resources for social programmes.

Four Sensex stocks outperform index in past 18 months

Analysts are not surprised by the performance of these stocks as two of them belong to the so-called defensive sectors & all four have good track records.

In the past three months, the country’s most tracked equity index, the Sensex, recovered a large part of the ground that it had lost after rising to its lifetime high in mid-January 2008, but it is still about 5,800 points away from the 21,206.77 peak. At least four stocks, part of the 30-stock Sensex, however, are trading at higher prices now than their January 2008 prices.

In other words, these four stocks have outperformed the Sensex.

Overall, 92 listed stocks have done better than the benchmark index in past 18 months.

The four Sensex stocks that have outperformed the index are MarutiSuzuki India Ltd, Infosys Technologies Ltd, Hindustan Unilever Ltd and Sun Pharmaceuticals Industries Ltd.

Maruti that makes 50% of cars sold in India was trading at Rs1,009 in January 2008. On Thursday, it closed at Rs1,094.65.

Infosys, the country’s second largest software services firm, closed at Rs1,803.25 on Wednesday, higher than its January 2008 level of Rs1,785. However, it closed at Rs1,751.55 on Thursday.

Similarly, Hindustan Unilever, the country’s biggest household product maker, has gained 6.51% during this period, from Rs244.1 to Rs260 and Sun Pharmaceuticals Industries, the country’s biggest drug maker by market value, gained 9.82%, from Rs1,220 to Rs1,339.75.

Among the four, Infosys has the maximum weightage in Sensex—7.66%, followed by Hindustan Unilever at 2.55%, Maruti Suzuki at 1.42% and Sun Pharma at 1%.

Analysts are not surprised by the performance of these stocks as two of them belong to the so-called defensive sectors and all four have good track records.

A stock that tends to remain stable under difficult economic conditions is called a defensive stock.

Pharmaceutical and fast-moving consumer goods stocks belong to this category as consumers do not stop buying medicines and personal care products even in the worst of times.

Nitin Khandkar, senior vice-president of the research division of Keynote Capitals Ltd, a Mumbai-based brokerage, said most of the companies whose stocks are trading above their January 2008 levels now, have a long track record and strong balance sheets.

“Some of them such as Hindustan Unilever and Sun Pharma are from what can even be called recession-proof sectors. To some extent, declining interest rates have helped them. These stocks were beaten down but were the first ones to get investor funds once the sentiment started improving,” Khandkar said.

He also has a word of caution. “The run-up in prices have been quite sharp and one would need to be cautious at the current levels,” he said.

Deepak Jasani, head of retail research, HDFC Securities Ltd, said the rise in these stocks “could be a reflection of micro triggers like capacity additions”.

According to him, quite a few sectors such as software and fast-moving consumer goods did not participate proportionately in the last rally and they could now be catching up with other sectors.

“For example, Maruti’s financial performance was commendable even in bad times. Hence, people would expect it to perform even better in times of economic revival,” Jasani added.

Prominent among other top traded stocks of Bombay Stock Exchange that have outperformed the Sensex are Hero Honda Motors Ltd; Mphasis Ltd; LIC Housing Finance Ltd; GlaxoSmithkline Pharma Ltd; Nestle India Ltd; Godrej Consumer Products Ltd; Colgate-Palmolive (India) Ltd; Lupin Ltd and Cipla Ltd.

A Mint analysis of stocks traded across the exchange shows that among the 92 stocks that have out-performed the Sensex, many belong to the defensive sectors. There are eight pharmaceutical firms and nine personal care firms among them. The list also includes eight software companies and 16 finance firms.

Foreign institutional investors, or FIIs, the main driver of Indian market, pulled out $13 billion from equities last year and another $6.9 billion in the first two months of 2009, pushing the index down to its 40-month low of 8,160.4 in the second week of March.

Since then, the Sensex has risen 88% even as FIIs have pumped in $7.19 billion since March.