Year of steep losses, volatility for Indian equities (2011 in retrospect)

December 31st, 2011 - 6:45 pm ICT by IANS  

Sensex Mumbai, Dec 31 (IANS) Indian equity markets, a favourite among foreign investors just a year ago, presented one of the worst performances among emerging economies during 2011, resulting in a key index shedding a fourth of its valuation when the year drew to a close.

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which stood at 20,389.07 points as on Dec 30 last year, lost a whopping 4,934.15 points during the year to close at 15,454.92, with a loss of 24.20 percent.

At the National Stock Exchange (NSE) the story was similar with the S&P; CNX Nifty ending the year 2011 at 4,624.30 points, against 6,134.50 points at the close of 2010, with a loss of 1,510.20 points, or 24.1 percent.

At the BSE, the Sensex had gained 17.43 percent in 2010 and 81.03 percent in 2009, in what was its best performance since 1999, after losing 52.45 percent the year before, when it logged the third worst performances among indices in emerging markets.

The top performing stock among the 30 Sensex shares was ITC with a 52-week gain of 15.36 percent. Bajaj Auto was next with 3.33 percent with 2.52 percent, followed by TCS (-0.33 percent), Sun Pharma (-2.52 percent) and Bharti (-4.32 percent).

The worst performance was from Hindalco (-52.95 percent), followed by Sterlite (151.98 percent), Tata Steel (-50.62 percent), Jaiprakash Associates (-50.52 percent) and Larsen and Toubro (-in 49.72).

The reason was also evident. Foreign institutional investors (FIIs), which had pumped the market the previous year with a net investment of $29.36 billion in equities and $10.11 billion in debt instruments, turned net sellers during 2011.

Their net sales were worth $357.8 billion in equity and $3.4 billion in debt.

“The first half of 2011 saw FIIs staying away because the prevailing valuations did not encourage them,” said D.K. Aggarwal, chairman and managing director, SMC Investment and Advisor, a leading brokerage and market research institution.

“These FIIs continued to stay away even in the second half as they found Indian equities risky. As a result, these foreign funds remained net sellers during 2011, unlike in the past when the drove the market,” Aggarwal told IANS.

For many of these funds, economic woes in their home markets, especially the European debt crisis, and a perceived policy paralysis in India after a string of alleged scams exacerbated their pull-out.

“Reforms were not there as was expected by the government. Reforms bring growth. Growth raises confidence in a market and the country as a whole. Reforms are the key to bring foreign money,” said Shrikant Chouhan, head of technical research at Kotak Securities.

Yet, 2011 saw a slew of second generation reforms from the market regulator, Securities and Exchange Board of India (SEBI), including norms to help companies raise funds while rationalising the guidelines on mergers and acquisition.

SEBI effected changes in the takeover code, allowing companies to buy up to 25 percent in another company without triggering the mandatory open offer. Prior to this the trigger was at 15 percent.

The acquirer will now have to buy a further 26 percent stake in the acquiring company through an open offer, up from 20 percent set by earlier norms. So if the open offer is successful, the acquirer will get a controlling 51 percent stake in the target company.

Before the year ended the market watchdog started a review of the process involving initial public offerings. The development came after SEBI banned seven small companies from fund-raising as they violated the norms of IPO.

FII investment limit in government securities and corporate bonds was also raised by $5 billion each. They can now invest up to $15 billion in government securities and $20 billion in corporate bonds.

As the world rings in the New Year, uncertainly still looms large whether Indian indices have touched the bottom yet.

“Fading economic growth, lack of reforms, fiscal constraints, volatility in currency, margin pressures on corporate are some of the major factors that are haunting our markets,” said SMC Capital.

“However, we expect from next year things would start looking bright post second-half, as policymakers are expected to come up with pro-growth policies.”

(James Jose can be reached at james.jose@ians.in and biz@ians.in)

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