Stocks 2012: Investor wealth grows 27%

Looking back: Bourses

Looking back at 2012 through the eyes of the stock market, it can be said that thankfully, it was not a repeat of the previous year for investors when equities tanked, the currency floundered and nothing moved right for them, as the markets in the current calendar period started on a range-bound note.

Post the policy developments since September this year, the bellwether index of Bombay Stock Exchange (BSE) gave almost 25 per cent return on a year-to-date basis. Owing to positive cues, such as an increase in global liquidity flows and domestic reform measures by the government, investor confidence in the markets too witnessed a positive turnaround.

Especially those investors who kept their faith in the markets have witnessed good returns now and so it has been a good year for them. As the metaphor goes: “Proof of the pudding is in the eating”, the investor wealth soared by 27 per cent to around Rs 67.7 lakh crore in 2012 with the stock indices (Sensex) gaining nearly 25 per cent on hefty capital inflows and (of late) a slew of reform measures although concerns remain over economic growth and rising fiscal deficit.

Investors doubtful

It may be recalled that at the beginning of 2012, analysts had stated that investors are apprehensive of further slide in view of corruption scams but the market proved them wrong by rising almost 1,739 points or 11.25 per cent to close at 17,194 points at the end of January 2012, as compared with the closing of December-end 2011 at 15,455 points, which is the largest monthly rise in absolute terms in the month of January during any calendar year, following hectic buying by foreign investors. 

The rally in the first month of the year under review was largely due to strong global cues on hopes of some stabilisation in Europe and gradual improvement in the US data, while on the other hand, domestically, the government’s decision to allow qualified foreign investors (QFIs) to invest directly in Indian shares from January 15, 2012 and signs of more foreign funds inflow also helped. From a broader perspective, when you look at the month-wise charts of popular Sensex and Nifty, you realise that the market was totally range-bound from January to April without throwing any surprise in terms of upside.

For one, the Union Budget, delayed this year owing to the Assembly polls held in five states, presented by then Finance Minister Pranab Mukherjee on March 16 failed to enthuse the investors and dashed hopes of reviving the economy. But in the month of May, the market turned negative and went down by about by 900 points. Even as fears persist over the reform process taking off after the ruling Congress party suffered a setback in some states, it was the revival of monsoon at the end and Moody’s retaining stable outlook on India supported the weak stock markets as thereafter, the BSE Sensex recovered to 17K level in June and maintained the same for July-August. 

Domestic bourses then began its upward movement from September onwards on the back of a recovery in global economy and excellent earnings growth in the third quarter of 2012-13, which was supported by hefty capital inflows from foreign institutional investors (FIIs). Adding to these, the RBI hinted of a rate cut in the coming January. Also, announcement of reform measures like allowing FDI in multi-brand retail and downsizing the LPG subsidy by the government later pushed the key indices higher from September.

While the stock market has seen a smart across-the-board rebound towards the end of the year after taking a big beating in 2011, it is the shares of medium and small size companies in terms of market valuations that have recorded better gains on a full-year basis.  As the year 2012 draws to an end, the mid-cap and small-cap indices -- popularly termed as minnows of Dalal Street -- have risen by about 40 per cent and 35 per cent, respectively, reveal an analysis of the BSE data. While blue-chip indices such as the Sensex at BSE and the S&P CNX Nifty at National Stock Exchange (NSE) gained about 25 and 27 percent respectively during the same period.

Thus the smart recovery in all the three segments of the stock market this calendar year were in sharp contrast with their performance in CY ’2011, when they had a excruciating fall of up to 42 per cent.

 "....This winning situation in the market seems to be the outcome of blast of liquidity from western central banks, coupled with government's renewed interest for reforms since September," says Rajesh Dedhia of BSE-listed Vantage Corporate Services.

Although few big investors did make large bucks in the market as select stocks scored new highs owing to paucity of floating stocks, but retail investors did not benefit either in the secondary market or IPO market and they were seen selling their holdings, says an analyst. Consequently, CNI Research's Kishor P Ostwal points out that the public ownership in the corporate India came down to 6-7 per cent as against a high of 15 per cent in 2007. 

During the year under review, foreign institutional investors (FIIs) made the second largest investment in the Indian capital market. According to the latest Sebi data, FIIs pumped in Rs 1,21,652 crore or $23.15, which is the second highest inflow since 1993.
Meanwhile on Friday last in this CY ’2012, BSE Sensex closed at 19,444.84 points, while 50-unit S&P CNX Nifty settled at 5,908.35 points. Also, domestic shares ended higher to begin the January F&O series on a firm note, amid gains in global shares led by buying in oil stocks.

Outlook for 2013

Investors in general appear to be optimistic in their outlook for 2013 on the premise that the US will soon draw a resolution over 'fiscal-cliff' that will lead automatic tax hikes and spending cuts by year end and may push world's biggest economy into recession. 

As far as India is concerned, investors outlook for both short and medium term in 2013, especially the market direction, is likely to be influenced by policy reform and expectations around the budget. In this context, Angel Broking’s Vice-President Vaibhav Agarwal responding to a Deccan Herald query says that easing of inflation giving headroom for monetary policy rate cuts, government’s policy measures to rein the fiscal deficit and expedite investment likley to give positive impetus to market sentiments.

Summing up, unlike in the previous year, investors, this time, could take out their crystal ball from their closet, dust it and do some gazing for some selective cherry picking of stocks as the new year unfolds. 

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