Indian markets trail Bric counterparts

The benchmark Sensex touched the 15,000 mark on Friday, which is a growth of nearly 50 per cent in a short span of 17 months.

However, the performance of Indian securities market in the first six months of 2007 fell short of that reported by developing markets such as Brazil, South Korea, Taiwan and China, as domestic markets have been reeling under concerns of currency appreciation and lower earnings growth.

The BSE Sensex gave returns of 6.3 per cent in the first six months of 2007, while the broad-based S&P CNX Nifty's returns were 8.9 per cent. During the same period, the Brazilian markets grew by 22.3 per cent, South Korea (up 22.3 per cent), Thailand (up 14.3 per cent), Taiwan (up 13.5 per cent) and China (up 12.0 per cent), according to an India Strategy report issued by the brokerage house, Motilal Oswal Securities.

However, the report added that the strong gains registered by the markets in the later half of June quarter indicate that the domestic market will narrow the gap rapidly.

Riding on an upswing in global equity markets, sustained confidence in Indian equities and an improved outlook on inflation and interest rates, the Sensex and Nifty had their highest-closing ever on Friday, with the Sensex topping the 15,000 point level in mid-session.

The June quarter is expected to clock an earnings growth of 18 per cent, which will be the slowest in the last five quarters.

"We estimate the first quarter of FY08 to see PAT growth for Sensex companies at 18 per cent. This would be the slowest earnings growth in the last five quarters, and lower than the previous 8 quarter average growth of 26 per cent," the report said.

There are concerns about rupee appreciation as over 50 per cent of the Sensex earnings, on an average, are from sectors that are sensitive to currency movements.

The calendar year, 2007 is likely to see the largest amount of capital being raised by the corporates. "Banks and real estate companies have already led the list of raising significant capital in the first six months. While there were initial concerns such as expected response to the issue and impact of money flowing from secondary to primary markets, the actual response has positively surprised the markets," the report said.

In the first six months of 2007, the corporate sector has raised equity of over Rs 600 billion, which is higher than any of the previous six years.

The investor response has been buoyant as the issues witnessed an average oversubscription of 15.6 times, reflecting sustained confidence in Indian equities and encouraging more corporates to raise money in primary markets.

While engineering, wireless and financials have been the best performing sectors, the worst performers have been auto, pharma and technology.

"It is not all companies that have not performed in the rally. Only 13 out of the 30 Sensex stocks have delivered positive returns in 2007 till date," said Rajat Rajgarhia, Head-Research, Motilal Oswal Securities.

The four-wheeler and real estate sectors are likely to see a revival following stable/lower interest rates and greater availability of finance.

Cement would benefit from the strong demand-supply scenario and the lifting of the price freeze by the government, according to the report.