Stocks 2009: Journey from gloom to boom

Initially, it did not seem so as the year started on a bearish note, driven by the massive corporate fraud by the Chairman of Satyam Computers coupled with the lingering global financial crisis on the economic front. But it is now clear that not only have the Indian stock markets revived from the gloom of 2008, but they have also witnessed a major bull run.

The figures will speak: As on December 24, 2009, the BSE Sensex was at 17,360 a good 75 per cent higher than the Sensex at 9,903 on January 1, 2009.
Similarly the NSE Nifty at 5,178 on the same date was 70 per cent higher than the begining of the year. (See chart)

Apart from a sharp turnaround in the economic performance in India, loads of foreign money — the surplus gathered by funds from the stimulus packages announced by the governments of US and European countries, fuelled the bull run in the Indian markets. “It has been a journey from bouts of extreme pessimism to robust optimism,” says DBS Cholamandalam Asset Management CEO Sanjay Sinha .

To begin with, the BSE Sensex made a good start on the very first trading session of 2009 by making a gain of 250 points, thanks to a fall in inflation and hopes of a rate cut by RBI.

However, the startling admission of a Rs 7,000 crore fraud made by then Chairman of Satyam sent stock prices crashing on January 7 and the BSE bellwether index lost almost 750 points in that session. 

The stock market was already bogged down by the economic slowdown in the wake of Lehman Brother’s fall in October 2008 followed by the Mumbai attacks —also known as the 26/11 crisis that claimed 179 lives —  in November 2008. Subsequently, though the Sensex witnessed a few sharp rallies and corrections till the end of February, weak global markets and disappointing data on the exports front had dragged stock prices down sharply and pushed the Sensex down by around 285 points on March 2, 2009. The market suffered another 250 points loss a couple of sessions later and then plunged to around year’s low of 8,040 on March 6.

However, after plunging to those dismal levels, the market went on to record some strong gains during the second half of the month on expectations that the global economy would soon be back on track.

Fundamental factors

During the year, the current account deficit of the country remained under pressure partly on account of firm petroleum prices and also due to RBI’s efforts to achieve ‘stability’ of the rupee-dollar rate, which forced the rupee to gyrate up and down with the fluctuations of the US dollar. 

This rate in 2009 hovered from  Rs 48.45 per dollar on January 1 to Rs 46.65 on December 25, except it once peaked to Rs 50.49 in March 23.  While the average petroleum import price in April was around $51 a barrel it averaged to $77 per barrel till mid-December. Betting on hopes that the global economy would soon be back on track despite the effect of the outbreak of swine flu, investors across Asian markets went on a buying spree on May 4. European markets rose sharply as well, and the Indian bulls, who did not let go of an opportunity, lifted the Sensex up by a whopping 6.4 per cent or 732 points that day.

A few good rallies later, the Sensex recorded its fastest ever 2,000 points surge in history, taking not more than a few minutes to jump from 12,173.42 to 14,284.21, as the bulls stormed the bourses following the Congress-led UPA front getting a strong mandate in the general elections 2009 minus the Left parties, who were known for the anti-industry and investor stance. In the sense, the historic moment for the Sensex came about on May 18, when the bulls shrugged off weak global markets and went in for heavy buying of stocks on the back of hopes of the new government would push forward reforms in the financial and insurance sectors and speed up divestment. 

On that day, the trading was halted within the first couple of minutes after Sensex mopped up 10.7 per cent or 1306 points. Upon resumption of trade a few hours later, the Index shot up again forcing the authorities to halt trading for the day.

But the markets suffered a major setback on July 6, when Sensex tumbled by around 870 points as investors went on a selling spree as the government was non-commital on reform and divestment, two major positive economic promises made in the Union Budget. In August too, the BSE barometer index gained 200 to 500 points on six sessions but suffered losses in the range of 250 to 625 points on five days during that month. Equities had a fairly good time in September suffering no big setbacks as such.  Recording strong gains on as many as five sessions, the popular BSE index was inching way up towards the 17,000 mark, which it eventually achieved on the final session of the month. A few strong rallies and some big declines later, the Sensex stood at 17,360 on December 24, recording a strong gain of around 7,600 points or 75 per cent for the year, till date.  

Rally accross the board

Although the stock market saw a recovery across the board in 2009, the scrips of mid-caps and small caps segment rose significantly more than the scrips with larger valuations. The small-cap index gave a return of 115 per cent, while the mid-cap index with nearly 100 per cent so far in 2009. “The rally in broader scrips was stronger than that of the large cap index or Sensex. Mid-cap and small-cap indices comprise stocks require relatively smaller investment as they are available at cheap rates in the market,” says SMC Capitals Equity Head Jagannadham Thunuguntla. The BSE Midcap index hit its best mark in year in mid October, while the BSE Smallcap index rose to a new yearly higher on December 24. Both of them had hit their lows on March 9.

Though Indian economy was largely insulated from the financial turmoil of the West and also gaining growth momentum as was amplified by the Finance Minister Pranab Mukherjee who is now projecting that GDP forecast could reach 8 per cent this fiscal as against the earlier projection of 5.5 to 6 per cent. However, the domestic stock market performance has largely been dominated by global news or external data — like the Dubai crisis or US job loss data or Federal rate revision — as FII remains one of the dominant forces. FIIs during this calendar year pumped in $ 17 billion in Indian equities — QIPs accounting for $7 billion, IPOs ($3.3 billion) and ADRs & GDRs ($3 billion). After the carnage witnessed since September end-2008, a deluge of global liquidity has boosted stocks across the globe this year, especially when governments and central banks around the world have injected trillions of dollars in the past one year to pull the world out of a most severe recession since the 1930s Great Depression.

Consequently, the year 2009 witnessed the global equity markets calming down and the Indian markets made the most of this, even becoming one of the top four performers in the world. Of course, FIIs played their part in this and helping the domestic equity markets along were sectors like metals, automobiles, and technology. “We are a very resilient sector and able to manage demand fluctuations and margins very well, which should be a matter of great satisfaction for investors in this sector,” says Girish Paranjpe, ED & Joint CEO of Wipro. With the year 2009 coming to end, what stands out glaringly is that the Indian equity market has been dominated more by global events.

In this process, it is missing out on the innate strength of India’s domestic demand driven economy and the fiscal & monetary policy adopted by Indian authorities, which stood out amidst global credit crisis.

DH News Service