Major rotation on in market, laggards till July had best run in Aug

In the BSE500 pack, some 307 stocks that had delivered negative returns during January-July gained up to 80 per cent in August alone.

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Is the market momentum shifting in favour of the laggards?
Underperformers of the post-Covid market rally in the first four months put up some solid performance in August and created a lot of buzz on Dalal Street. Equity benchmarks Sensex and Nifty gained over 4 per cent, each.

In the BSE500 pack, some 307 stocks that had delivered negative returns during January-July gained up to 80 per cent in August alone.

Va Tech Wabag emerged as the top gainer, rallying to Rs 190 on August 31 from Rs 114.50 on July 31. The stock was down 37 per cent for the year till July 31.


Among others, Varroc Engineering, Dish TV, Adani Enterprises, eClerx Services, Jamna Auto Industries, Zee Entertainment, IDFC and Nava Bharat Ventures have rallied over 50 per cent in August after being down 16-53 per cent during January- July.

Is the market momentum shifting in favour of the laggards?

“When money keeps on coming into the market, it goes into high-quality companies in the first phase. As the market witnessed a recovery, good quality companies became available at attractive valuations. That is the first phase wherein money typically flows into largecaps,” said Kunj Bansal, Partner & CIO, Sarthi Group.
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In the second phase, money starts going into the midcaps and smallcaps, and thereafter to those sectors or companies which have not participated in the first two phases of the rally.

Foreign portfolio investors poured in over Rs 89,100 crore in domestic stocks during May-August after having offloaded shared worth nearly Rs 68,857 crore in March and April.

Some analysts say company-specific reasons gave a boost to a couple of companies. For instance, Tata Motors hogged the limelight after the management announced plans to make the company debt-free. After falling 43 per cent during January-July, the stock advanced 38 per cent to Rs 143 on August 31 from Rs 107.70 on July 31.

Brokerage ICICIdirect is positive on Tata Motors (TML) now. “The intent of creating shareholder value through meaningful debt reduction as well as the strong consumer response to the new models at TML make us turn positive on the stock with a target of Rs 160,” it said.
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Likewise, analysts also turned positive on Varroc Engineering after the company in its annual report focused on cash-flow management to deleverage balance sheet through cost and capex controls. Ambit Capital has a ‘buy’ rating on the stock with a price target of Rs 490.

“The market participation in smallcap and penny stocks increased substantially with the opening of new demat accounts. Besides, majority of PMSes have got a lot of liquidity and they are dabbling in midcaps. The trend is set to test the previous high,” said Amar Ambani, Senior President and Head of Research-Institutional Equities, YES Securities.
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The 30-share Sensex was around 3,500 points away from its all-time level of 42,273 on August 31, while the 50-share Nifty needs about 800 points to hit a record high of 12,430.

Among others, shares of Ashoka Buildcon, Ashok Leyland, Sunteck Realty, Bliss GVS Pharma, Himatsingka Seide, Shriram City Union Finance, PNB Housing Finance and Dilip Buildcom have rallied 40 -50 per cent in August.

“We see a couple of positive things on the earnings front for select underperformers. The broader market has also started to perform. However, investors should not go with these stocks, unless you know the reason why they are recovering. One should look for management commentary and earnings recovery,” said Gaurang Shah, Head Investment Strategist at Geojit Financial Services.

However, he continues to be bullish on IT, speciality chemicals, pharma, consumers, cement and life insurance stocks.
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