2015 is nearly over and hence time for introspection. Sensex is down 6% for 2015. However, what can be of interest is that it is down 13% from its All Time High (ATH) which was 29,681 achieved on 29th January 2015.
ATH is simply defined as the historic high for a stock or index. Meaningful markets and stocks consistently establish new ATH’s reflecting growth and opportunities. While stagnant markets/companies may struggle to re-conquer their ATH’s and can thus test investor patience (Japan for eg).
For Sensex, let us first focus on the bad news. Here is a list of 7 stocks that had their ATH’s way long back:
Wipro, the IT giant, achieved its historic high some 16 years back and is down 34% since that level. In other words, it would need a jump of approximately 52% to catch up with is historic high which it has been struggling to do for the last 16 years. This probably represents an outlier.
Next in the list is a telecom giant (Bharti Airtel) that saw its peak glory some 8 years back and is down 40% since that level. It would need a climb of 66% to reach its ATH again.
However, from a gap point of view, Tata Steel is the worst performer with its current stock price representing a gap of 72% compared to its all-time high achieved in December 2007. In other words, it would need a 350% appreciation in its stock price to scale back to its ATH, a very unlikely scenario. BHEL, a public sector company, is not way behind in terms of the gap. Its current stock price represents a 70% scale back compared to its ATH achieved in November 2007, just before the onset of the Global Financial crisis.
A perusal of this list reveals dominance of public sector companies, with 3 out of 6 in the list.
Before we jump to the good news, let us also see a moderate version of Sensex stocks i.e., stocks that had their ATH in 2014, not so far away as the first list.
Now comes the good news i.e., list of Sensex stocks that touched its ATH’s during 2015. Surprisingly, this list includes Sensex itself! High on this list is ONGC, a public sector oil company, whose stock plunged 50% from its ATH. It is now 19 months since that peak was achieved and it requires a stock rebound of 200% from its current level to get back to its peak. Closely following this is another public sector company, GAIL whose price gap between its ATH and current price is 32%. The best in this category is Bajaj Auto, the auto giant that achieved its ATH during November 2014 and is only 7% away from its historic peak. It only requires a rebound of 7% to touch its ATH, which is quite a possibility.
The final comments should go to Maruti Suzuki, the auto giant. It enjoys the best performance of the lot on this key metric. It touched an ATH during November 2015 and is only 3% away from that level. With a 3% rebound, it can set a new high.Tata Motors trails this list with the steepest gap at 36%. It achieved its all-time high in January 2015 and now needs a rebound of 57% to close the gap. There is only one public sector company (Coal India) in this coveted list. Sensex, the index, also achieved its ATH in January 2015 and now has a gap of 13%. It will need a 15% rebound from the current level to test new heights, a good possibility in 2016.
It is important for bellwether stocks to touch new highs and not languish on old glory. Stocks touch new highs primarily on performance though speculation cannot be ruled out. While speculation can set the fire, the continuance depends on fundamental performance. Being part of Sensex, these stocks enjoy high liquidity and patronage from foreign investors as well. They are well covered by analysts. While constructing a portfolio/investment strategy, it is important to note whether stocks are touching new highs. It is better to avoid stocks that came away a long mile from their historic highs and shows no signs of getting there. While these stocks will still be part of index funds or ETF’s, they need not be part of an active portfolio strategy.
PS: The author thanks Karthik Ramesh for data assistance.