The Hindu Business Line : On target, and off

Here is an analysis of how the Busines Line research team's various calls panned out in 2006. Suffice it to say that it's been perhaps the most difficult year for stock calling, over a four-year period.

Just over 300 recommendations were made across stocks and sectors; this involved coverage of 270 distinct stocks. This is about 10 per cent lower than the number of calls made in 2005; this was offset by an increased number of IPOs, seasoned offerings and rights offers in 2006.

Average returns on buy calls — which accounted for 75 per cent of all the recommendations — were 24 per cent. Hold calls, which represented 20 per cent of all recommendations, delivered 13 per cent, on an average; sells, which at about 5 per cent, were the lowest over the past three years, averaged negative returns of close to 5 per cent.

For this compilation, calls made between October 1 last year and September 30 this year have been reckoned. The top calls across `buy' and `sell' categories are featured in the Table.

On the IPO front, most of avoid recommendations on mid- and small-cap outfits were spot on, as these stocks had a rather lukewarm opening. However, some of the avoid calls that did not play out according to the script were Educomp, Allcargo Global Logistics, Development Credit Bank and GMR Infrastructure.

Portfolio for 2006: Last year, we had recommended a basket of stocks which, in our view, were best positioned to deliver superior investor returns. The 28-stock portfolio has returned a tad over 42 per cent, just a few percentage points below the Sensex, but seven percentage points higher than the average returns of equity mutual funds in 2006. The portfolio had six large-caps stocks and the rest were from the mid-cap space. Given the significant underperformance of the latter index vis-à-vis the Sensex, the overall returns are fairly good.

Sector outlook for 2007: We remain bullish on the infrastructure/construction space, as there is still some steam left in the story. Capital goods (CG) is another sector we are sanguine about, as the capex cycle is yet to run its course, and the investment phase will be a positive.; Rising disposable incomes will translate into discretionary spends, and we would prefer frontline plays in the alcoholic beverages space and media. In the commodity arena, cement is our preferred sector. And, within IT, we would prefer a combination of top-tier and select mid-cap stocks. Also, given the extent to which the mid- and small-cap indices have lagged the Sensex over the past couple of years, 2007 could turn out be their year of out-performance. With several mid-caps trading at a marginal premium to their June lows, 2007 could well provide the right opportunity for them to stage a rebound.

Happy investing in 2007!

Nath Balakrishnan

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