The second term of the United Progressive Alliance (UPA-II) in power at the Centre has flattered to deceive. The term started with a bang, with the Sensex gaining around 2,100 points, or 17 per cent, on May 18, 2009, on expectations the absence of the Left parties in the ruling alliance will clear the road for reforms. However, the three years since then have yielded just 13 per cent. Broader indices, such as the BSE 100, 200 and 500 have given cumulative returns of 16 to 21 per cent in these three years, barely matching the returns offered by less risky investments such as bank deposits and bonds.
The picture is even bleaker if one looks at the returns from the day the index crossed the 16,000 mark on September 7, 2009. Between then and now, while the Sensex has remained flat (a gain of 0.8 per cent), the broader market has remained lacklustre. While the BSE 100 index has gained 0.54 per cent, BSE 200 and BSE 500 have gained 0.8 per cent and 0.96 per cent, respectively. Under the UPA regime, consumer durables, auto, FMCG and healthcare were the top performing sectors, whereas those like oil and gas, power and real estate posted negative returns.
In market parlance, such extended periods of going nowhere are known as ‘time correction.’ During time correction, while the fall in prices is not very steep, the stocks languish in a range for extended periods, leading to investor apathy. Analysts say macroeconomic indicators, political conditions and a weak currency will mean such time correction would continue for the next several months.
Madhumita Ghosh, head (research & PMS), Unicon Securities, said during such periods, investors would be better off looking at individual stocks: “If you see the index, you would not make money.” She added there no visibility of a quick recovery in the next year. “In 2008-2009, though global issues led to a steep fall in the markets, the strong domestic economy supported a V-shaped recovery. But, today the domestic economy is not in shape.” Inflation is high and rising and growth is affected, she pointed out.
Seshadri Bharatan, director, Enrich Fin & Securities, adds depreciation is a concern for markets in the near term. “India has forex reserves of about $300 billion. Against this, about $120 billion of short-term loan repayments are lined up in the near term. Second, the current account deficit is widening. Unlike in 2007-08, when we were able to fund the deficit through foreign direct investment inflows, these two events are likely to put pressure on the currency, taking it to 57-60 levels. This means there will be no sharp rally in the markets during this period. ”
Ghosh added when the economy was strong, even the political news flow was favourable, leading to the V-shaped recovery. “Now, even the political situation is supporting the weakness in the markets,” she said.
Bharatan said the Nifty, which had recently broken below the 5,000 mark, is likely hover around the 4,500-5,500 range over the next one year to 18 months before making any reasonable gains. “Psychological studies show even in case of the greatest losses, like the loss of a dear one, the pain does not last beyond 18 months. Even the market movements have broadly followed this pattern,” he added.
