Considering that most of our recommendations are with a two- to three-year perspective, it would be fair to say that readers who have acted on our stock recommendations have been rewarded well, within a narrower time-frame.

We drew up a returns scorecard, taking stock of recommendations made between October 1, 2006 and September 30, 2007. The more recent recommendations were left out from the analysis, as three months is too short a period to evaluate performance. A total of 184 secondary market recommendations were made during this period (IPOs are excluded).

More than 70 per cent of the stock calls were “buy” recommendations, with volatility in the market providing ample opportunities to pick up stocks at lower levels. About 20 per cent were “hold” ratings and the remainder advised a “book profit/sell” on a stock. The majority of calls continued to be on stocks belonging to the mid-cap category — stocks with a market capitalisation of less than Rs 8,000 crore.

Returns were calculated from the time of the recommendation till December 31, 2007. Returns were benchmarked against the Sensex over the period.

The results? The “buy” recommendations delivered an average return of 59 per cent, beating the average 47 per cent return from the Sensex during this period. More than half the 131 “buy” calls delivered a return higher than 40 per cent. A good twenty-five stocks have more than doubled since our “buy” rating.

“Hold” recommendations, too, paid off; these stocks kept pace with the index. We continue to periodically review stocks under our coverage, highlighting key developments that have taken place since earlier ratings.

Many of our “hold” ratings are on stocks that have been significantly re-rated since earlier “buy” recommendations and serve as follow-on recommendations.

Staying invested in the stocks on which we have a “hold” rating would have earned you an average return of 45 per cent, in line with the Sensex.

With several buy opportunities screaming for attention, we made few “sell/book profit” recommendations. We managed a 50-50 performance here; with some stocks rising sharply after the ‘sell’.

The rally in 2007 turned out to be highly selective, with several sectors under our coverage, such as IT, pharmaceuticals, FMCG, auto and auto components, significantly underperforming the index. However, our ‘buy’ calls from infrastructure, media, power equipment and capital goods more than compensated for the underperformers.

One large-cap pick that deserves mention is a well-timed “buy” rating on L&T in December 2006, which delivered a return of 190 per cent since our recommendation. It may be a stock that is widely covered, but the extent of its outperformance certainly caught many by surprise.

Some of our other winning picks in the mid-cap segment include Adlabs Films, Sadbhav Engineering, Areva T&D, HEG and Balaji Telefilms.

Among our ‘sell’ recommendations, Patni Computers, ICRA, Britannia and ITD Cementation were the ones that stand out; these stocks have managed negative or single-digit returns on a soaring market.

Our “book profit” recommendation on Patni was based on a decline in contribution from key services, high attrition rates and uncertainty surrounding the promoter’s stake sale. The stock has fallen 35 per cent from those levels. The “book profit” recommendation on ICRA followed a three-fold rise in the stock price since our “invest” recommendation during its IPO in March 2007. The stock has also been flat since the sell recommendation in May.

We did have our share of misses. Many of the calls on mid-tier IT stocks in the early part of the year went awry, with the sharp appreciation in the rupee and concerns of a U.S. slowdown surfacing causing a steep de-rating of stocks in the sector.

However, many IT frontliners are now at a significant discount to the market. The deceleration in earnings growth appears, to an extent, factored in and the sector is also under-owned after steady institutional selling in recent months.

Some recovery in frontline IT stocks is a possibility; and some of our more recent calls in the sector, made at lower levels, are likely to pay off.

A few ‘sell’ calls have also gone against us, such as GTC Industries, Pantaloon Retail, Hindustan Construction and GAIL. We do review our calls regularly, however, and will re-visit them if there is a reason to alter our view.

We have reversed our ‘sell’ calls on Tech Mahindra and Everest Kanto Cylinders, for instance.

With stock valuations at new highs, we have consciously featured stocks with good fundamentals at relatively attractive valuations vis-À-vis the market.

As retail investors are our target audience, the conscious effort is to pick stocks that have the potential to deliver a 20 per cent-plus absolute return, with low downside risk in choppy markets.

While some stocks may have delivered relatively tepid returns in a runaway market, we believe they could yet deliver over the next two years.

We sign off with a toast for 2008. To your wealth.

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