The only consolation after the market downturn in the year ended March 2009 is that the first three trading days of the new financial year have seen investors recovering Rs 2,37,781 crore and the Sensex regaining 827 points from its 5,936-point fall.
After pocketing attractive returns from the stock market for six years in a row, investors lost 41.6 per cent, or Rs 21.54 lakh crore, in 2008-09 as the US subprime crisis had an unprecedented adverse impact on markets the world over. And, two sectors — housing construction and infrastructure — have taken the maximum hit following the subprime loan defaults. Compared to the peak prices of January 8, 2008, the value erosion has been Rs 60 lakh crore.
Though investors have recovered Rs 237,781 crore in the three trading days of the new financial year and the Sensex has regained 827 points from its 5,936-point fall, the stock market has a long way to go before it could wipe out the losses suffered in 2008-09.
Going back to the last fiscal, while the crash in global metal prices hurt metal makers, loss of jobs in the financial services segment affected the valuation of consumer-related sectors like airlines, automobiles and retailing. The value erosion has been over 75 per cent in shipyard, electrical equipment, metallurgical coke, steel, hot- and cold-rolled sheets, transmission line tower and housing construction.
Only the two-wheeler segment, thanks to Hero Honda, turned out to be a double-digit gainer and has increased investors' wealth by 45 per cent in the financial year under review. Food products increased investors' wealth by 3 per cent, while personal care producers just about managed to protect their investors' wealth. Among others, the market cap of eight sectors fell between 12 and 25 per cent. Out of the 127 sectors, market valuations of 72 have declined by over 50 per cent each, while that of 42 sectors have seen value erosion between 25 and 50 per cent.
Over 65.4 per cent stocks traded on the Bombay Stock Exchange (BSE) have underperformed the market by depreciating more than 45 per cent each. Only 248, around 9 per cent, stocks have given returns to their investors. The only encouraging fact is that out of the 248 stocks, 38 have appreciated by over 100 per cent, while 25 have risen between 50 and 99 per cent. Among trading groups classified by BSE, 53 per cent A-group and 70 per cent B-group stocks have underperformed the market.
Despite periodic value erosion in stock prices, traders continued to flock the market as the number of trades recorded a modest rise on BSE and the National Stock Exchange (NSE) during the year. The trading volume in terms of shares declined by 25 per cent on BSE, while on NSE it came down marginally by 5 per cent. Owing to a 42 per cent decline in the market price of actively traded stocks, the BSE turnover declined 30 per cent, while NSE witnessed a 22.4 per cent fall.
The BSE Sensex, down 38 per cent, had its biggest fall since 2000-01, when it was down by 28 per cent in the aftermath of the internet bubble burst. The realty index, which comprises housing construction and infrastructure firms, was the biggest loser in 2008-09, down 79 per cent.
The year saw BSE consumer durables and metal indices decline by 59 per cent each, while the capital goods index witnessed a fall of 54 per cent. The BSE 500 index (down 43 per cent), mid-cap index (down 54 per cent) and the small-cap index (down 59 per cent) underperformed the benchmark in relative term.
Housing constructions and infrastructure stocks saw a sharp correction during the financial year on account of rising interest rates, depleting future order book and the sharp fall in real estate valuations. Unitech and DLF, down 87 per cent and 74 per cent respectively, were the biggest losers, while Akruti City, which remained the sole gainer till March 23, lost out to market vagaries after NSE expelled it from the F&O segment and BSE transfer it to trade-to-trade.
Among the A-group stocks, Spice Communication more than doubled, while Hero Honda increased its shareholders' value by 55 per cent. Castrol, Lupin Laboratories, Colgate Palmolive and GSK Consumer were the other A-group gainers, up more than 10 per cent each. Among losers, Indiabulls Financial, Rolta, Gujarat NRE Coke, Welspun Gujarat, Jai Corp, Suzlon Energy and Aban Offshore depreciated by over 75 per cent each.
Binayak Tex Processors topped the B-group with a 1,300 per cent appreciation. Torrent Cables (555 per cent), Kwality Dairy (431 per cent), Shree Global Tradefin (390 per cent) and Panoramic Universal (267 per cent) were the other B-group winners. The B-group losers' list was long with the market value of 20 stocks declining by over 90 per cent each. The top losers on the list were Triton Corporation, Bio Green, Pyramid Saimira, Maytas Infra, Prajay Engineers and Vishal Retail.
However, after declining to their multi-year lows on March 9, the benchmark indices have recouped 29 per cent. According to emerging portfolio fund research (EPFR) Global, foreign investors have regained risk appetite and infused $502 million into Asian equity funds over the past two weeks as equity prices rebounded. In January 1998, when markets had fallen by half from the July 1997 peak, foreign fund flows had turned positive amid a bear market rally.
According to Citigroup, in the last four months of 1998, when Asian markets advanced 50 per cent from their lows, hardly any investor believed that equity prices had bottomed out. That is why redemptions from Asian funds persisted for three months. The divergence between fund flows and market performance is an indication of the beginning of a bull run. And this is not the case at the moment.
A Citigroup Asia Pacific research says that the 29 per cent pullback has been backed by low valuations, signs of growth revival, rising monetary flexibility and a little inventory build-up. India's bear markets have historically lasted 30 months on an average, which is quite longer compared to regional markets where the bear phase disappears within 23 months. The benchmark trade now is at a 30 per cent discount to its 15 year P/E average, and is about 15 per cent above its historical low. Thus, the current rebound is not the beginning of a bull run.
Since India's equity market lows are in sync with its economic cycle, the market is more likely to crawl rather than spike out of its current trading band. The market has limited upsides from here, and Citigroup analysts expect the Sensex to maintain a 9,000-10,500 trading range.
A technical analyst at Anand Rathi Securities said that the bear market bottom was created in October 2008 itself. The Nifty has moved up sharply from its intraday low of 2,539 created on March 6. And the benchmark's forward march seems to suggest that the up move will be strong and take the market substantially higher.
