How did 2010 turn out?

Dec 31, 2010

In this issue:
» A scam filled year
» Interest rates raised 6 times to reign in surging inflation
» India's rising political importance
» Bailouts galore
» ...and more!!

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 Chart of the day
The year 2010 is drawing to a close. We take this as an opportunity to look back at the key things that marked the year.

We start with the most important of them and that is the performance of the stock markets. Which sectors did well and which did not.

The stock performance of 2010 was clearly a celebration of the great Indian consumer. Consumer durables led the sectoral indices with a spectacular 64% return. The domestic consumption led growth story of India was the main driver for the sector's stocks. The auto sector flourished with a 34% return on the back of a strong increase in volumes, better operational performance and good credit availability. Following close to its heels, the healthcare sector also posted an impressive 33% return, the chief reasons being robust overseas revenues, stable exchange rates and a positive outlook for 2011.

The biggest loser, the realty sector, faced the repercussions of the boom-time excesses. Poor demand off-take made debt repayments difficult. And as if that was not enough, the bribe-for-loan scam saw the sector's returns nose-diving. The power sector index fell 7% mainly due to the slow growth in generation by the companies. The companies have just not been able to meet their targeted capacity addition plans and this has hurt their stock prices during the year. Metal stocks also witnessed a lackluster performance, dipping marginally by 1%.

All in all an interesting year for the stock markets. Which sectors do you think will be the best and the worst in 2011? Share your comments with us.

Data source: Prowess

India frequently finds a mention in the list of world's fastest growing economies. But this fame goes hand-in-hand with a type of infamy. That of being branded as one of the most corrupt nations on earth. Thus, the fact that a few scams are unearthed every now and then doesn't come as surprise to the majority of Indians. In fact, they now see it as a way of life. But what transpired in 2010 left even the most corruption tolerant stunned. A bribe-for-loan scam saw the sector's returns nose-diving. The power sector index fell 7% mainly due to the wave of scams came to light in the second half of the year. And the sheer variety and the magnitude of the same led to a huge question mark over the attractiveness of the India growth story. The 2G scam, CWG scam, Adarsh scam, IPL scam and LIC Housing Finance scam all did their bit to tarnish the image of the country. But what took the cake was the 2G scam, which is believed to have cost the exchequer a loss of a whopping Rs 1.8 trillion. Going by the mudslinging that followed the unearthing of most of these scams, there is hardly any hope that the scourge of the scams will leave India anytime soon. Till such time, things like double digit growth and more importantly, equitable growth will perhaps remain only pipedreams.

The RBI did a reasonably good job of holding up its reputation in 2010. Not that it was the only central bank in Asia to raise interest rates. But the conservative regulator raised rates as many as 6 times in 2010 to keep price rises under check. The repo rate (at which banks borrow from the RBI) was raised by 1.25% during the course of the year. While this may have not yielded the desired impact on inflation, it did check callous lending by overzealous banks. Also at a time when the banks in the West were doling out cheap liquidity, the RBI's risk averse policy was appreciable. Even if it meant sacrificing GDP growth rate. The central bank may have been accused of falling behind the curve in terms of rate hikes. But we believe that monetary policy cannot work in isolation to control price rises. The RBI's calibrated effort is well balanced keeping the economy's funding and growth targets in mind.

Data source: RBI, Equitymaster

India may be an emerging country but its stature in the global arena has moved several notches up. Otherwise what would explain the fact that the leaders of the 5 permanent members of the UN Security Council (US, Britain, France, Russia and China) visited India in the latter half of 2010? India's GDP has been growing at a brisk pace. This is when the developed world is still down in the dumps. Indian companies have been making increasing strides abroad. Foreign investors are pouring money into Indian stock markets on the back of the India growth story. Little wonder then that politicians across the world have realized that India is certainly not a country to be ignored. The might of India, along with China, has increased in the aftermath of the global financial crisis. And its robust growth rates are the envy of the developed world. And so 5 top global leaders in 2010 made a beeline for the Indian shores. This is to meet the country's top leaders and establish trade partnerships. What is more, the US, France and China are supporting India's aspiration to become a permanent member of the UN Security Council. This only goes to show the country's rising power.

2010 can well be termed as the year of sovereign bailouts. The year saw a whole host of European economies seeking bailout from their debt crises. It all started with Greece and spread to Portugal, Ireland, Italy, and Spain. The cases of all these economies was almost the same - growing rapidly during the early 2000s, getting a flood of foreign capital, building up huge deficits, and then crashing like a pack of cards.

Most of these countries now have 'junk' status assigned to their government bonds. Policymakers there are not trying to find long-term solutions to these bailouts. The first proposal they have is to create a body that aims at preserving financial stability of the region. And the second proposal is to set up a single authority responsible for framing tax policies and coordinating government spending across EU member countries. How far will these measures go remains to be seen. As far as 2011 is concerned, we believe the situation will only worsen before it gets any better.

Data Source: The Economist

The commodities had a ball during 2010. As markets turned volatile, investors rushed to park their funds in safer investment areas. To compound this, there was a lot of money that the investors needed to park. The quantum of investible money increased dramatically with several rounds of quantitative easing in the West. All this money was poured into the commodities that led to a surge in their prices. This compounded with severe climatic issues led to a big dent in the people's wallets during 2010. The losses were marginally offset by a more lustrous performance of the precious metals, gold and silver. Nevertheless rising commodity prices did impact the margins of almost all companies during the year.

In the meanwhile, the Indian markets were trading well above the dotted line during the post noon trading session. India's benchmark index, the BSE-Sensex was trading higher by about 130 points or 0.6% at the time of writing. Gains today were led by stocks from the realty, banking and auto spaces. On the other hand, IT stocks were amongst top under performers. As for rest of Asia, markets ended on a mixed note Japan closing weak and Hong Kong ending higher.

 Today's investing mantra
"Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether." - Peter Lynch

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7 Responses to "How did 2010 turn out?"

puneet dilwaria

Jan 1, 2011

Oil&Gas(HPCL,IOC,IGL etc) and natural resources companies will do very well now onwards.

Puneet Dilwaria



Dec 31, 2010

Even metal stocks would have done bad, but for the spectacular returns by HINDALCO and Tisco.


Dinyar Edulji

Dec 31, 2010

Financials, Software, Capital Goods, Pharm and FMCG should do well in 2012.


roque dcunha

Dec 31, 2010

I have orchid chemicals, Parekh aluminium and what is ur firm targets on this stocks, i hold a good stock holdings position on both counters.


roque dcunha

Dec 31, 2010

Pharma & infrastructure with real estate should do well in 2011



Dec 31, 2010

more facts on sensex expected from you


k k naria

Dec 31, 2010

Is not it possible that politicians from main stream parties are not allowed to contest Rajya Sabha. Instead, there is reserved categories for group representation from Acadmacians, Professinal Accountants, Industrialists, NGOs, Religious bodies from all religions,Eminent Scientists, Retired judges ,MBAs, Retired Army, Retired Air Force,Retired Navy people, Retired IAS,IFS,Agriculture Scientist,Medical Professionals and people from every walk of life. This can change to some extent the character of Indian politics.

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