January is named after Janus – the Roman god of gates and doorways, who could see both forward and backward at the same time. And this month, we look back to understand what lies ahead of us.

Although the absolute returns for Indian markets were low in 2022, they outperformed the MSCI Emerging Markets and MSCI World indices by more than 20% over the year. Indian equities performed better than these global peers for the third year in a row, thanks to retail investors and buying by domestic funds. 

The story does not end here. According to Prashant Nair, Deputy Director at CNBC-TV18, Indian benchmark indices have now generated positive returns for the seventh consecutive year. 

However, many market analysts feel this dream run is done. Indian markets face multiple challenges in 2023, including high valuations, slowdown in key export markets, chances of fresh Covid waves and additional interest rate hikes. 

Before we draw up fresh trading strategies for 2023, let’s explore some themes that  delivered handsome returns for investors in a difficult year like 2022. These will give important cues to investors and prepare us for a volatile 2023. 

In this week’s Analyticks:

• Momentum superstars:: High momentum stocks which generated big returns in 2022
• Bruce Lee stocks: Stocks delivering consistent returns and growth since the past three years
• MF and Promoter favourites: Growth stocks bought by mutual funds or promoters in the past four quarters

Let’s get into it.

Momentum superstars screener: Fertilizer stocks and small banks fly high

This momentum screener selects stocks with a Trendlyne Momentum score of over 70, which have generated superlative returns of more than 30% in the past year. Among these, Fertilisers and Chemicals Travancore (FACT) enjoys the highest momentum score and multiplied investors’ wealth by more than 2.5X in 2022.

Fertilizer stocks have been buzzing in trade. Higher prices of agricultural commodities due to tight supplies helped the realizations of agrochemical and fertilizer makers. Reports suggesting that the government might increase the subsidy on urea in the upcoming budget have also worked in their favour. 

FACT has enjoyed especially high buying momentum thanks to its stellar financial performance in H1FY23, and capacity expansion plans.

Another stock riding high on its near-term store expansion plans is Kalyan Jewellers. Strong demand trends in the 2022 peak festive season also lifted the spirits of this counter.

Westlife Development outperformed its larger QSR peers in 2022, owing to its superior quarterly growth and ambitious growth targets. The company hopes to triple its sales to roughly Rs 4,500 crore via healthy same-store sales growth and higher store expansions in the next five years.  

Small-cap banks are another category seeing high momentum scores, with 35% returns to investors in the past year. Most of the stocks here are public sector banks, which gained mileage due to a strong revival in credit growth, cleaner balance sheets and attractive valuations in 2022. Banks like UCO Bank, Punjab & Sind Bank and South Indian Bank more than doubled investors’ wealth in the past year.  

However, analysts like Ambit Capital and Dalal & Broacha are sceptical about the continued outperformance of PSU bank stocks in 2023. They have run up quite a bit, and valuations of some stocks are ahead of their expected growth and return ratios. 

Bruce Lee stocks: Consistent growers like Tube Investments and Varun Beverages emerge as big wealth compounders

American martial artist Bruce Lee once said that “long-term consistency trumps short-term intensity”.  The comment about martial arts holds true for stock markets as well. Consistent growth stocks have rewarded investors with higher returns time and again.

Companies like Varun Beverages and Tube Investments of India have grown their profits at a CAGR of over 30% in the past three fiscal years. They multiplied investors’ wealth at a whopping rate of over 60% between 2019 and 2022 end. 

Varun Beverages has steadily expanded its distribution reach into newer geographies, and added new products to its portfolio. The company also took advantage of the sudden jump in out-of-home consumption post the omicron wave. It more than doubled its profits on a TTM basis and also doubled investors’ money in 2022. 

Tube Investments has been diversifying its product portfolio away from the auto sector, which is cyclical in nature. The company managed to post robust growth between FY19-FY22, a period of downcycle for the auto space. It staged a successful turnaround of CG Power in FY22, which is now driving its higher growth along with its export markets. 

PI industries is another player which has benefited from the consistent growth of its export business over the past few years. It also clocked strong revenue growth in the past few quarters on robust volumes. The company was a top industry outperformer in the past year.

Emerging as the dark horse in the telecom sector, Bharti Airtel staged a smart recovery post the slowdown in FY16-FY19, and returned to the black in FY22. Healthy subscriber addition, market share gain in 4G segment and the robust rise in average revenue per user aided its financial growth. 

Smallcap capital goods stocks have also surprised investors with their consistent returns and net profit growth in the past three years. These companies benefited from strong order inflows as investments revived in railways, defence, infrastructure, metals and mining, and energy sectors. RHI Magnesita India and Timken India emerged as the fastest growers and wealth compounders within this group. 

MF and Promoter favourites: Mutual funds and promoters picked auto and bank stocks in 2022

Given the solid growth of passenger and commercial vehicle wholesales post April 2022, mutual funds and promoters picked up stakes across auto OEMs and auto ancillaries. Mutual Funds added the highest stake in Rolex Rings. This small-cap auto stock got listed in August 2021 and generated returns of over 50% in the past year. 

Promoters also picked up auto ancillaries, based on the improved outlook of the sector. A promoter entity held by the Minda family picked up over 2.5% stake in UNO Minda in the September 2022 quarter. The company has a couple of capex projects in lighting and alloy manufacturing over the medium term. 

Mahindra CIE Automotive was also among the top promoter picks in 2022 and has returned over 50% to its investors. Its Spanish promoter entity raised nearly 5% stake, while M&M cut over 2% stake in the company in 2022.

Axis Bank, Bandhan Bank and HDFC Bank have emerged as the most bought stocks by mutual funds in the past four quarters, while Axis Bank has been the top industry outperformer in terms of financial growth in Q2FY23. It has grown its net interest income the fastest among larger peers and is the top analyst pick for 2023. 

Even though the IT sector was battered in 2022, mid-tier IT company Coforge came out as the top pick by mutual funds. The company has maintained a robust QoQ revenue growth trajectory and also sustained its margins at 17% levels in a difficult period. 

Thomas Cook (India) was among the most bought small-cap stocks by promoters in 2022. Healthy surge in travel demand to both domestic and international destinations may have prompted promoters to raise more than 6.5% stake in the company.  

You can find some popular screeners here.