Photo: Reuters
Photo: Reuters

Commodity stocks fared worst in 2015

Vedanta, Hindalco, SAIL, Tata Steel, JSPL, Cairn saw erosion of 41.67-61.20% of their value in a year

Mumbai: Six of the 10 worst stock-market performers this year are resource-linked companies feeling the fallout of a commodities rout that hammered prices of everything from copper to aluminium and steel to oil.

How they fare in 2016 will depend on an increase in commodity prices, and few are betting on that.

Shares of Vedanta Ltd, Hindalco Industries Ltd, Tata Steel Ltd, Jindal Steel and Power Ltd, Steel Authority of India Ltd and Cairn India Ltd fell to multi-year lows. Also among the 10 worst performers were Bank of India, Jaiprakash Associates Ltd, Unitech Ltd and Canara Bank.

These companies saw erosion of 41.67-61.20% of their value in a year during which the Bloomberg Commodity Index of 22 raw materials, from oil to metals, shed 24.11%. On 8 December, it fell to 79.169 points, the lowest since 3 June 1999.

Brent crude is down 39.26% for the year to date. It fell to a low of $40.26 a barrel on 8 December, its lowest since February 2009. Copper on the London Metal Exchange has shed 28.04% in 2015, while aluminium has dropped 18.49% in the same period.

A surge in import of cheap commodities to India also hurt the profitability and share prices of metal firms.

“Commodity prices have continued to slide on worries over the global macroeconomic growth environment, particularly the slowdown in China. This has dragged down commodity-linked companies too," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

“Hopefully commodity prices will stabilize next year, and selective opportunities will emerge," added Chhaochharia.

Apart from companies impacted by the commodity price rout, the other top losers are infrastructure firms and banks.

Infra companies faced the brunt of stalled projects and slow demand. Banks, weighed down by a surge in bad loans, were battered as investors booked profits on their strong performance last year.

“In the infrastructure space, the companies with higher financial leverage and incomplete projects and other issues related to execution haven’t done well. Demand has not picked up for the sector at large," said Navneet Munot, chief investment officer at SBI Mutual Fund.

Shares of Jaiprakash Associates plunged nearly 56% this year as investors fretted over concerns on burgeoning debt, and tepid demand. Shares of Bharat Heavy Electricals Ltd fell 36.82%.

Banks put up a stellar performance in 2014 on hopes that India’s economy would return to a path of rapid growth after the election of a a new, business-friendly government.

Shares of top lender State Bank of India declined 25.62% this year after a 44.72% gain in 2014. Shares of No. 2 ICICI Bank Ltd shed 26.73% in 2015, after gaining 60.68% in 2014.

Among the stocks that gained the most, there was no clear sectoral leadership.

“I think the overall approach of bottom-up stock picking, and avoiding financial leverage , in particular has paid off quite well," said Munot of SBI Mutual Fund.

Shares of truck maker Ashok Leyland Ltd topped the charts with a 73.42% rise, helped by better earnings and the initial public offering plans of the company’s financing arm. Its net profit rose 137% in the September quarter, led by higher sales.

Hinduja Leyland Finance Ltd, the commercial vehicles financing subsidiary of Ashok Leyland, is planning to raise 600-650 crore through a share sale, Mint reported in September

Also among top gainers were state-run oil refiners Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd, whose shares rose 51.64% and 39.72% respectively, on lower crude prices and deregulation of diesel prices.

Indiabulls Housing Finance Ltd was ranked third and its shares saw a 46.67% rise. The company reported a more than 20% rise in its net profits in all three quarters of the calendar year so far.

“This is typically what happens in a flat-to-declining market. It is difficult to figure out a particular sector, and bottom-up stock selection is the best approach," said Chhaochharia of UBS.

Among the best performers on the BSE 500 index, large caps lagged behind and relatively smaller names performed better.

Rajesh Exports Ltd, Jubilant Life Sciences Ltd and Tata Elxsi Ltd were the top gainers on the BSE 500, with advances of 381.46%, 252.91% and 224.45%, respectively.

“That’s a largely domestic money led-rally. While foreign investors typically focus on the large caps, the domestic guys are keenly interested in smaller local companies as well. Since there were strong inflows from DIIs (domestic institutional investors), a lot of money came to these stocks," explained Chhaochharia of UBS.

DIIs have been net buyers of Indian shares in 10 of 12 months this year, and have pumped in 64, 031.92 crore in equities. They are on track to mark their best year for investments in shares since 2008, thanks to strong inflows into mutual fund schemes from retail investors.

Foreign institutional investors (FIIS) have been sellers in half the months this year, but are net buyers of Indian shares to the tune of around 27,600 crore. If the trend lasts for the next two weeks, India will see its lowest FII inflows since 2011.