The Indian markets have been among the primary beneficiaries of the return of risk appetite among global investors. The BSE 100 index on the Bombay Stock Exchange has risen by 46% from its lows in March this year, with the majority of the listed stocks participating in the rally. More than 85% of the stocks that trade regularly have registered double-digit returns.
As the accompanying table shows, stocks with a market capitalization of between Rs250 crore and Rs1,000 crore gained the most (50.7%), indicating that mid-cap stocks did relatively better. But investors seemed to be wary of penny stocks. Stocks with a market cap of less than Rs10 crore rose by 32%, underperforming the broad market. In similar rallies during the bull market, penny stocks would rise the most.
Indian investors seemed to have learnt their lessons after burning their fingers last year. But this is not to suggest that investors have been cautious in the past two months. While the preference has been for companies with a reasonably large size of operations, investors seem to have ignored business fundamentals to chase high returns.
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Among the biggest gainers in the past two months are stocks such as Suzlon Energy Ltd (up 109%), Unitech Ltd (177%), JSW Steel Ltd (144%) and Tata Motors Ltd (99%). All these firms are highly leveraged and were being avoided by investors until two months ago. While it’s true that financing constraints have eased for some of them, the extent of the rise suggests that risk tolerance levels have shot up considerably.
In the case of Suzlon, for instance, it’s still not clear where the company will raise €175 million (Rs1,152 crore) to buy the remaining holding of the Martifer group in REPower Systems AG. Besides, it is still in the process of changing the terms of its foreign currency convertible bonds, clearly indicating that the company still isn’t out of the woods.
Graphic by Sandeep Bhatnagar / Mint
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