Widespread gains

As much as 92 per cent of NSE stocks have made year-on-year gains

The markets have been in correction mode since mid-January "" the Nifty's close last week was around 12 per cent lower compared with the highs reached in mid-January.

On most trading days, the fall has been greater in mid-cap stocks. NSE's Midcap 200 index has declined almost 18 per cent in the same period.

But that's nothing compared with its outperformance in 2003. Between April 2003 and mid-January 2004, the Midcap 200 index had gained 177 per cent, compared with a 100 per cent rise in the Nifty.

Even now, after the sharper correction, the Midcap 200's gain stands at 128 per cent since April, against 78 per cent for the Nifty. Mid-cap shares have clearly outshone large caps in the past one year.

What's more, unlike earlier rallies, the correction has not been extremely sharp, indicating that long-term money (mostly foreign institutional investor) has flowed into these stocks as well.

But not everything has been hunky-dory "" small-cap stocks have taken quite a beating. The total market capitalisation of companies with a value of less than Rs 50 crore (as on March 26) has fallen 40 per cent since mid-January.

Needless to say, some individual stocks have fallen at much higher rates. But again, in most cases, the fall in prices this year has been much lower compared with the gains made last year.

Since April last year, only 54 stocks of the total 653 (for which comparable data are available on the NSE) have shown negative returns. In the other 92 per cent of the cases, investors have made gains.

Govt policy and the markets

The impact of industry-friendly policies is felt immediately in the stock markets, where a re-rating of the industry takes place.

A notable example is the power sector "" the Electricity Act 2003 (implemented w.e.f. from June 10, 2003) has sought to reduce governmental interference and permit greater private participation in power generation and distribution.

As a result, companies such as Reliance Energy Ltd and Tata Power have planned aggressive expansion strategies to improve their market share. Bulls have recognised the turnaround in this sector and this sector has performed better than the broader market over the last 10 months "" Reliance Energy's ishare price is up 245 per cent, and the Tata Power scrip has appreciated 182 per cent vis-a-vis the Sensex's gain of 73 per cent.

A similar situation arose in the banking due to industry friendly legislation-with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (w.e.f June 21, 2002) it allowed banks to take over mortgaged securities of defaulters simply by giving due notice.

Bank stocks surged on the bourses as the markets perceived it as a quick and relatively cost effective way for banks to resolve their problem of NPAs-the share price of ICICI Bank rose 35 per cent between June 3, 2002 and August 27, 2003 and in the case of SBI's scrip it appreciated 104 per cent, while that of Bank of Baroda tripled.

However, with numerous companies approaching higher courts to block the implementation of this act, bank stocks have shown signs of reversing those gains - ICICI Bank has lost 9 per cent to close at Rs 311.6 over the last 8 weeks and SBI has dropped 2 per cent. Analysts point out that similar policy-induced changes could be in store for the telecom and media sectors as well.

SBI's hunting limits

With its credit growth much below that for other scheduled commercial banks, the State Bank of India management has chalked out bold new strategies for credit growth.

The bank's Corporate Banking Group has been asked to ensure that at least 50 per cent of the budgeted growth in advances should come out of new business, i.e. should not arise out of enhancement of limits for existing customers.

Towards this end, a new scheme has been introduced where the bank assesses credit limits of corporates not banking with SBI on the basis of their published balance sheets and then informs the corporate of the limit.

Presumably, the corporate so targeted will be sufficiently impressed by the exercise to start banking with SBI. These limits have been called "hunting limits" by the SBI staff, since it's a way to hunt for new business.

Unfortunately, the cynics in the bank have already started calling these "haunting limits" on the assumption that credit limits made available so easily would at some point become bad debts, and return to haunt the bank.

With contributions from Mobis Philipose and Amriteshwar Mathur