Peaking on new themes

What's different between the current and the December stock market?

The National Stock Exchange's (NSE) S&P CNX 500 index probably best captures the mood in the market, as it accounts for around 94 per cent of the exchange's total market cap.

It's worth noting that the index has moved above the 1500 mark this week "” the last time it moved above this mark was in late December 2003, close to the peak of last year's rally.

Also, the difference between the index's current level and its peak in January is only around 7 per cent. It's reasonable to say that the markets are approaching another peak.

Nevertheless, it's interesting to see that the composition of stocks that have driven the current rally is considerably different from the previous one.

India Index Services and Products Ltd (IISL), which maintains indices for NSE, breaks up the S&P CNX 500 into 73 industry indexes. A comparison of this data between 29 December 2003, and 4 October 2004 (the S&P CNX 500 was round the 1520-levels on these two days) brings out an interesting pattern.

 

Leaders and laggards S&P CNX indices; Percentage change between December 29, 2003 & October 4, 2004
Gainers		Losers
Abrasives	57.39	Detergents (FMCG)	-35.81
Sugar	42.22	Photographic products	-34.18
Textile machinery	39.76	Telecom equipment	-30.98
Transmission towers	38.75	Diversified	-29.34
Tea and coffee	32.54	Consumer durables	-28.41
Metals	31.13	Paper and paper products	-17.52
Telecom services	19.69	Personal care (FMCG)	-13.04
Textile products	17.3		-11.26
Electrical equipment	16.43	Food and food processing (FMCG)	-10.75
Airconditioners	16.14	Automobiles"“2 , 3 wheelers	-9.14
Cigarettes	14.66	Refineries	-7.91
Cement &  cement products	13.59	Shipping	-6.55
Travel and transport	10.26	Steel & steel products	-5.73
Computer software	9.71	Hotels	-5.50

Of the 73 sub-indices, 43 have posted a decline, while the remaining 30 have made gains during the period. The top losers were the detergent, photographic products and telecom equipment indices, Among the prominent industries, metals, telecom services, cement, sugar, textile products, and software stocks drove the S&P CNX 500 index up.

On the other hand, FMCG indices (like detergents), consumer durables, paper/paper products, personal care, fertilisers, and auto stocks corrected from their peaks. It's easy to understand why the sugar, tea and metals indices have gone up on the one hand, while the FMCG indices and the consumer durables index is down.

But it's not so clear why the paper index is lower or why the air-conditioners index should be up so much. Part of the reason is the fact that the markets have looked at new themes to keep the rally going.

Infrastructure sector

The infrastructure index for August was up 4.4 per cent, well below July's growth rate of 7.4 per cent. Is that an indication of a slowdown?

It's true that the index level of 183.4 for August was well below July's level of 190.5. But then, one month may be too short a time to spot a trend. How has the index behaved since April?

During April to August, the infrastructure index was down 1.2 per cent, compared with a rise of 3.7 per cent during April to August last year, and an increase of 4.3 per cent in the previous year.

Part of that decline is due to cement production being 16 per cent lower in August than in April, on seasonal factors, compared with a decline of 3.2 per cent last year.

Bottlenecks also seem to be appearing in crude production, up 0.9 per cent this fiscal, compared to a rise of 6.3 per cent in April to August last year and a similar rise in 2002-03; in coal, down 5.8 per cent this fiscal compared to a decline of only 1.1 per cent last year (April to August) and a similar decline in 2002-03, and in petroleum refining, where production this fiscal is higher by only 1.06 per cent this fiscal, compared with more than 9 per cent over the same period in the two earlier years.

Only steel appears to be the bright spot, with production increasing at about the same rate as last fiscal.

With contributions from Mobis Philipose