Offbeat stock bets beat broader markets

Select mid-and-small-cap stocks from off-beat sectors have witnessed a smart rally in the past 3 months

While most investors have been scouting for safer havens such as fast-moving consumer goods (FMCG) and pharma for the past three months, owing to market volatility, select mid- and small-cap stocks from off-beat sectors have witnessed a smart rally during this period.

About 100 stocks from BSE-500 companies have outperformed the benchmark indices after global markets reacted positively to a surprise decision of the US Federal Reserve, which refrained from its widely expected bond-buying tapering decision.

Besides shares from defensive sectors such as FMCG, pharma and IT, 127 stocks from automobiles, shipping, breweries, and pesticides have outperformed the market by recording positive returns since July. That apart, metal and telecom stocks also saw a good upside.

Among individual stocks, PVR, Gujarat Gas Company, Just Dial, Great Eastern Shipping, Tata Communications, Delta Corp, SKS Microfinance, STC India and Radico Khaitan have rallied more than 30 per cent each since July this year.

The BSE benchmark S&P BSE Sensex has gained three per cent, BSE-500 index was up one per cent, while mid-cap and small-cap indices have recorded negative returns of three per cent and 0.31 per cent, respectively.

Impressive show
Shares of PVR, the country’s largest multiplex chain operator, have surged 63 per cent to Rs 526 from Rs 322 since July on hopes of higher revenue growth in the coming quarters. The company had reported an impressive 78 per cent year-on-year (y-o-y) jump in consolidated net profit at Rs 13.60 crore on the back of a 87 per cent y-o-y growth in net revenues at Rs 334 crore for the June quarter.

“PVR is expected to make revenue of Rs 1,400 crore and PAT (profit after tax) of Rs 72 crore in FY14. For FY15, the estimates for Sales, PAT and EPS stand at Rs 1,656 crore, Rs 90 crore and Rs 23. The stock is trading around 22 xFY14 EPS and 17 xFY15 EPS, which looks costly. However, it can be bought on any major decline,” says a recent Nirmal Bang report on the company.

Most of the shipping shares such as Great Eastern Shipping, Mercator, ABG Shipyard and Shipping Corporation of India have gained up to 38 per cent after the Baltic Dry Index — the benchmark for measure of shipping or sea freight rates across the world – touched its highest level since December 23, 2011, last week.

Justdial, the company providing local search services over the phone, web, mobile and SMS, saw a 40 per cent jump to Rs 910 from Rs 650 on institutional buying.

Hindustan Zinc, Sesa Sterlite, JSW Steel, National Aluminium, NMDC and Hindalco Industries from the metal space were up 15-30 per cent, as latest data showed China’s official non-manufacturing Purchasing Managers' Index rose to a six-month high in September. China is the world's largest consumer of copper and aluminium.

“The momentum in metal stocks is likely to continue. Profit booking is recommended in HCL Tech and TCS, as it is majorly dependent on USD-INR movement. We also advise investors to book profits in select pharma and health care counters,” says  Muralikrishnan, head of Institutional equities, research and strategy at Karvy.

In the auto pack, Sonam Udasi, head of research at IDBI Capital, prefers Tata Motors over the medium-term. He also likes Eicher Motors given the continued strong traction in Royal Enfield volumes that has more than compensated for demand weakness in commercial vehicles. “However, we are negative on Maruti Suzuki owing to the launch of models targeted at its fast selling models like Swift, D’zire and Ertiga, higher discounting and forex fluctuation,” he says.

On the telecom space, analysts at Angel Broking expect Bharti and Idea to perform well going ahead. However, they are currently neutral on the telecom sector as issues such as one-time spectrum charge, and renewal fees still persist with Bharti continuing to be their preferred pick.