A strong recovery from Covid-19 slowdown, record-high initial public offerings (IPO), coupled with additional liquidity in the economy, drove the markets.
However, an interesting change in dynamics was observed in 2021. Retail investors enthusiastically prepared for Heavy selling was witnessed by Foreign Institutional Investors (FIIs).
FIIs remained net sellers for six out of the twelve months in 2021 and have continued their decline in 2022 so far.
Despite substantial FII outflows, India’s benchmark BSE Sensex hit its all-time high in October 2021 and posted a massive 21% return for the year.
This suggests that retail investors and DIIs were the only major buyers in the market. In other words, if retail investors halt or reduce their buying activity, the market will face a very tough time.
Some of this was seen in May 2022 when retail investors pulled out money from the markets to apply for Life Insurance Corporation (LIC) IPO.
Nonetheless, a good number of stocks saw a sharp rise in 2021. But which were the most popular stocks of 2021?
Have these stocks performed well in 2022? Or have they largely destroyed investor wealth?
Read on to know how the most popular stocks of 2021 are performing now…
#1 Zomato
No surprise here.
Being the second largest public offering of the year in terms of funds raised, Zomato was undoubtedly one of the most talked about IPOs in Indian history.
It was also the first tech company to lay the groundwork for other tech companies to launch their IPOs.
Zomato launched its IPO in July 2021, seeking investment of up to 93.75 billion Although the company was making losses and had a very good valuation, the IPO was subscribed 38.25 times.
Zomato is listed at a premium of 51% over its issue price. The upward momentum continued for the next few months before turning down a slippery slope in 2022.
Take a look at the chart below which will show you Zomato’s journey since listing.
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Zomato is down 52.7% since the start of 2022.
In early 2022, Zomato shares went into a massive correction amid a slump in stocks of other major new-age companies such as Nykaa, CarTrade Tech, and Paytm.
Investor sentiment was further weakened by weak financial results for the December 2021 quarter. The Russo-Ukraine War intensified the sell-off in the market.
The company, like its peers, is facing cash flow problems. Operating cost is quite high and it is unable to bring it down from its cash flow. Thus, it is reporting huge losses.
Also, Zomato’s business model offers little scope for price increases to meet operating costs.
The recent scenario of interest rate hikes has also affected the new age tech stocks. In such volatile times, investors prefer to hold stocks with good profits and high cash flow rather than growth companies.
Zomato has wiped out half of the wealth of investors in the current financial year.
#2 Restaurant Brands India
Restaurant Brands India (formerly Burger King India) operates as a franchise of Burger King. It is one of the fastest growing international quick service restaurant chains in the country.
As the national master franchisee of the Burger King brand in India, the company has exclusive rights to develop, operate and franchise Burger King branded restaurants.
Established in 2013, the company has established around 260 restaurants in major cities.
Shares of Restaurant Brands made their stock market debut on 14 December 2020 and listed at a 92% premium, while the stock closed 130% higher in its first day of trading.
The issue was the second most subscribed IPO of 2020 as it was subscribed 156 times.
Take a look at the chart below which presents the performance of the share price since 2021.
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The stock is down 33% so far in 2022.
Primarily, the shares took a dive in February 2022, as new shares allotted by the company to Qualified Institutional Buyers (QIBs) started trading on the exchanges on February 18.
the company had taken 14 billion through Qualified Institutional Placement (QIP) by issuing 108.5 million equity shares to eligible QIBs.
In the subsequent three trading sessions, the stock dropped 23% and fell below the issue price of the QIP 129.95 each.
The company intended to partially use QIP funds to buy Burger King Indonesia, which is the second major reason for the dip.
Burger King Indonesia’s financial situation is not promising. Their earnings have been steadily declining amidst the fierce competition in the Indonesian market.
There is one notable aspect though, Restaurant Brands Asia currently has no debt on its balance sheet, which is rare for a loss-making growth company.
#3 Adani Green
The list would be incomplete without the inclusion of at least one Adani Group company.
Headquartered in Ahmedabad, Adani Green Energy is a Indian Renewable Energy Company,
The company has a project portfolio of 13,990 MW from under-construction assets and 20,284 MW of lock-in growth as of December 2021.
Interestingly, Adani Green is also one of the best performing stocks since the March 2020 crash, giving around 1,379% returns in two years.
The stock is up over 60% so far in 2022.
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The growth in April 2022 is due to a 56% year-on-year increase in operating efficiencies during the fourth quarter of FY22. YoY energy sales grew 84% during the same quarter.
However, the stock has remained strong for the past one month. This can majorly be attributed to the increase in interest rates by the central bank to tackle inflation.
Adani Green funds all its capital expenditure through loans from holding companies, debentures and foreign currency loans.
With further increases, Adani Green may feel a burden on her books. The company failed to generate positive free cash flow in the 2021 fiscal year.
#4 Tata Motors
Neither global semiconductor shortages nor the hit of a second Covid wave could hamper Tata Motors stock’s nearly 160% growth in 2021. The stock outperformed the benchmark indices by a mile.
Tata Motors saw a rise despite the company reporting a consolidated net loss due to weakness in its subsidiary Jaguar Land Rover.
The success of US-based Tesla Inc. and the central government’s push towards electrification of the automobile sector prompted investors to look for companies that could benefit from the technological disruption.
Tata Motors’ electric vehicle plans have received a huge boost with an investment of around US$ 1 billion by TPG Rise in its EV subsidiary.
Take a look at the chart of the price performance of Tata Motors share.
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After a sharp rally in October 2021, Tata Motors is down 15% in the current calendar year.
The decline can be attributed to weak financial results for the December 2021 quarter.
Lastly, the semiconductor shortage burden on the automaker remained constrained in the form of retail sales for the October-December 2021 quarter.
Retail sales registered a decline of 13.6% on a quarterly basis, as against a decline of 37.6% on an annual basis.
Furthermore, the anticipated economic slowdown could have a huge impact on an already lagging industry.
#5 Nazar Technologies
2021 was an astronomical period for the Indian primary market with 63 companies collectively picking up 1.2 billion through its first resolutions – the highest amount ever in a calendar year.
Nazra Technologies was one such company that introduced its IPO. It is backed by veteran investor Rakesh Jhunjhunwala.
The company is a leading India-based diversified gaming and sports media platform with presence in India and in emerging and developed global markets such as Africa and North America.
The company primarily derives revenue from the eSports business, along with subscription fees paid by users to access gamified early learning content.
It made a grand debut in the stock market as the shares of the firm listed on 30 March 2021 1,990, 81% more than its issue price 1,101 on the National Stock Exchange (NSE). After listing, it went up 2,026.9, up 84%.
Take a look at the chart below which will show you the journey of the company since listing.
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In September 2021, Nazara Technologies outperformed the benchmark indices with a gain of 20.3%.
A strong smallcap rally coupled with strong growth projections for the mobile gaming market in India, the bullish trend was created due to competition from unlisted players only.
However, the stock has fallen in 2022. Headwinds in real money gaming in India on account of changes in Apple policies and regulatory environment and negative impact of COVID-19 on the e-sports segment could sour investor sentiment.
Despite such challenges, revenue from operations grew 42% in March 2022, while consolidated profit grew 17%.
Nazara Technologies is down 48.6% so far in 2022.
The anticipated global economic slowdown could have a huge impact on the industry going forward.
But remember that gaming addiction has just started in India. We haven’t seen anything yet.
Nazar Technologies, the only listed player in the online gaming industry, has a huge market waiting to be captured. There are also many unlisted companies in this sector.
Keep this equation in mind…
Favorable demographics + Internet penetration + Smart phone coverage + Purchasing power = Huge long term benefits.
takeaway?
The stock market is an expensive place to learn investing. The market first takes your money and then gives you a lesson.
This has been the story of many popular stocks. Stocks riding high on the easy money have crashed.
As we’ve written before, 2022 will be a tough year for investors. The chances of money loss are higher in the coming months than in any period since March 2020.
And that’s exactly what has happened. Currently, the markets are extremely volatile. So you should be extremely careful in selecting the best stocks to invest in.
Tanushree Banerjee, Co-Head of Research at Equitymaster, had this to say about stock picking…
Profits here will not be easy money. You will need to select your stocks carefully, assess the risks, insist on a margin of safety and exit on time. I say this because too much money chasing too few good stocks is reversing the trend. A rising interest rate cycle could now reverse the direction of fund flows globally. Furthermore, the post-pandemic recovery extends well into earnings projections and market valuations. So from now on, I believe that income recovery can be higher only in rare economic circumstances.
Remember that opportunity can come in any adversity. So, if you invest carefully you can reap the benefits from the current environment.
Now if you are planning to invest, then target long term investment To get maximum benefit.
Happy investment!
Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com