The Stocks That Left The Street Surprised

Nifty 50, India's benchmark index, has given analysts the biggest pleasant surprise in three years.

Shares of 33 of India's 50 largest companies beat forecasts made at the start of the year, the highest since 2014, according to Bloomberg consensus estimates. That's in line with Nifty's performance, which scaled new peaks to gain the most in three years. Five stocks rose in line with estimates, while 12 missed the mark.

The year started with concerns around demonetisation and analysts scaled back their expectations, Sunil Kewalramani, author and chief investment officer at Global Money Investor, told BloombergQuint. “Several companies were able to shrug off the note ban earlier than expected and ended up beating estimates.”

The cash purge helped funnel household savings into mutual funds and insurance, which these institutions invested in stocks. About Rs 90,400 crore net inflows came through domestic investors, which was around 1.43 times higher than previous year, Bloomberg data showed.

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Outperformers

Bajaj Finance Ltd. beat the Bloomberg consensus forecast by the highest margin. The non-bank lender, added to the index in September, rose 83.7 percent more than consensus target price.

“The non-bank sector witnessed a good amount of cash flows from mutual funds and foreign investors,” said Vinod Nair, head of research at Geojit Financial Services. Bajaj Finance also outperformed its peers.

Nair doesn't see non-bank lenders doing well next year and is betting on public-sector lenders that stand to gain from the government plan to infuse Rs 2.11 lakh crore. A potential rise in interest rates will also weigh on non-bank financial services providers, Kewalramani said.

Tata Steel Ltd., country's largest carmaker Maruti Suzuki India Ltd., billionaire Mukesh Ambani-led Reliance Industries Ltd., the largest consumer goods maker Hindustan Unilever Ltd. were the other stocks that surprised analysts by outperforming forecasts.

“We remain confident on metal companies with the increase in prices this year,” Nair said. He is also bullish on Maruti Suzuki and Reliance Industries, though does not expect growth in fast-moving consumer goods sector.

Underperformers

Drugmakers led the companies that failed to live up to expectations as rising competition in the U.S., among their largest markets, hurt pricing and margins. Lupin Ltd. was the biggest negative surprise, with the stock missing the target by 50 percent.

Sun Pharmaceutical Industries Ltd., Aurobindo Pharma Ltd., Tata Motors Ltd., and Dr. Reddy's Laboratories Ltd. were among the top underperformers.

Kewalramani expects pharma stocks to outperform going forward. “The recent healthcare reforms in the U.S are pushing towards faster drug approvals. That will boost pharma companies.”

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