Sensex down 8% half way through 2011

Fresh from a 17.4 per cent rally in 2010, the markets started the year 2011 on a soft note. In January itself, the Sensex dropped over 10 per cent to the 18,000-odd levels after touching the yearly high of 20,665, and the downtrend continued till February. Thereafter, the markets have been volatile with alternate bouts of buying and selling.

With high inflation worries clouding investor sentiments, political uncertainities, scams, soaring crude oil prices and a massive earthquake in Japan, the markets had very little to cheer. Foreign Investors turned net sellers in January, leading to the highest monthly loss for the markets in the last 34 months.

The month of March was the only silver lining, wherein the Sensex managed a gain of 9 per cent. Overall, the index has shed 8.11 per cent in the last six months.

The rate-sensitives such as realty and auto have been the major losers this year. The BSE realty index has slumped around 30 per cent to 2,020 and the auto index has dropped 14 per cent to 8,798 in the last six months. High inflation, which has compelled the RBI to hike rates for the 10th straigth time in June, has been a major worry for these two sectors.

Among individual stocks from the A group, infra, construction and real estate stocks have shed the most weight in this year. DB Realty dropped 64 per cent after the CBI investigation revealed that Rs 200 crore bribe had allegedly been routed to DB Realty through Kusegaon Realty and Cineyug to Kalaignar TV in the 2G spectrum allocation. Unitech slipped 52 post the arrest of Sanjay Chandra, Managing Director of the Gurgaon-based real estate company and Unitech Wireless (Tamil Nadu). Sun TV also fell 34 per cent to Rs 348 as its name got dragged into the 2G scam.

Lanco Infratech and GVK Power & Infra declined 50-60 per cent each. Reliance Infrastructure shed 36 per cent to Rs 536.

And aviation stocks took a beating on account of volatile ATF prices and strikes. Jet Airways was the top loser - slipping 37 per cent. Kingfisher Airlines dropped 39 per cent, while SpiceJet declined 59 per cent.

However, the FMCG index has proved its worth as an defensive bet. The index outperformed with gains of around 10 per cent to 4,045. In fact, it currently stands at a fresh life-time high.

Jubilant Foodworks soared 52 per cent to a new high of Rs 949 and Marico jumped 29 per cent in the same period. Dabur India and Colgate Palmolive gained 14 per cent each.

B group stocks outperformed the benchmark with a big margin - with the highest gainer, Arora Fibres, jumping over 650 per cent in the six months under review. (As compared to Jubilant Foodworks' 52 per cent gain).

Non-banking financial institutions (NBFC) also saw a good rally, with the shares of Polytex India, Brilliant Securities, Bridge Securities, Ankush Finstock and Visagar Securities gaining 100-300 per cent each.

On the other hand, small-cap IT stocks slipped with Coral Hub, Datasoft Application, Allied Digital, Quintegra Solutions and Accentia Technologies dropping as much as 70-80 per cent each.

The road ahead won't be easy, says analysts. While the annual food inflation has eased to a six-week low, analysts believe that the Reserve Bank of India would continue in the path of monetary policy tightening to factor in the recent fuel price hike. Food inflation now stands at 7.78 per cent in the week to June 18, from last week's 9.13 per cent.

Monsoons have traditionally been a major factor in driving the growth of an agrarian economy such as ours and the progress of rains will be looked at, very closely. Corporate earnings will also be closely watched, especially for possible downgrades in earnings.