Index biggies keep subprime woes at bay

As the Indian stock market looks to have become independent of global cues, a closer examination unravels the story that lies beneath: it has a lot to do with the composition of the indices.

Sectors that are insulated from the subprime mortgage crisis unfolding in the US are the heavyweights in Indian stock indices. In comparison, sectors like information technology and pharmaceuticals, which depend a lot on the US market, carry less weight.

The 30-share Sensitive Index of the Bombay Stock Exchange, universally referred to as the Sensex, gives 21.06 per cent weight to the financial sector, 17.07 per cent to energy and 14.5 per cent to the industrial sector.

Thus, the three sectors account for over 50 per cent weight in the Sensex. Technology, in comparison, has a weight of just 14.66 per cent.

The drag on Indian indices has come mainly from the stocks of software services companies, which draw most of their income from the US, drug makers, whose fortunes are closely linked to the US, which accounts for half of the world's pharmaceutical sales, and automotive companies, which are mired in a global slowdown.

Software services stocks have been weathered by another factor "" the rising Indian currency against the Greenback. The damage caused by these three has been mitigated by the buoyancy in the energy, industrial and, surprisingly, financial sectors.

Indian financial sector stocks have remained unaffected by the US sub-prime mortgage crisis since most companies are not directly involved in this area.

Thus, the State Bank of India, ICICI Bank and HDFC Bank have risen 10 per cent or more above their August 21 levels even as US behemoths, Citigroup and JP Morgan Chase, have not recovered and have, in fact, fallen.

The result is that the Sensex bounced back from its August low even as the Dow Jones, NASDAQ, FTSE 100 and Nikkei 225 continue to wobble.

As a case in point, in the Dow Jones index, four sectors "" industrial (26.36 per cent), consumer non-cyclical (20.02 per cent), technology (13.54 per cent) and financial (13.13 per cent) "" account for 73 per cent of the weight.

Of the 30 components of Dow Jones, only five have been losing ground: General Motors, Citigroup, JP Morgan Chase, Wal-Mart and Du Pont. IBM, Hewlett-Packard and Intel Corp, which derive a large portion of their revenues from streams other than services, have rebounded.

The other stock market defying the global cues is the 40-stock Hang Seng of Hong Kong, which rose to a new high on September 5. Not surprisingly, in the Hang Seng, the financial sector has a 57.81 per cent weight. Further protection has come from communication, whose weight is nearly 17 per cent.

On the other hand, the Nikkei-225 has three sectors "" industrial (29.29 per cent), consumer cyclical (21.26 per cent) and consumer non-cyclical (15.99 per cent)"" which account for 66.54 weight. Consumer non-cyclical includes pharmaceutical, breweries, tobacco while cyclical is dominated by automobiles.