Jan 1, 2005|
For 2004, there could not have been a better close for Indian stock markets as they not only ended the last trading day of the year on a strong footing but also closed the final trading week of the year with near 2% gains. For Indian stock markets, year 2004 will go down in history for the numerous records it managed to create during the year. However, 2004 could have ended on a more cheerful note but for the Tsunami disaster that struck many Asian nations on December 26, 2004, claiming over 125,000 lives at last count.
Coming back to the markets and just a few of the records it managed to bag in its kitty this year, 2004 saw the highest ever inflows of FII money into Indian equities. While the fact that a weakening US dollar definitely aided this trend, the strong fundamentals of the Indian economy and the good growth prospects for India Inc. over the next few years too played an important part in attracting the moolah. Thus, for 2004, net FII equity investment into the country was approximately Rs 352 bn, overtaking the previous high of Rs 300 bn in 2003, helping the BSE-Sensex end the year at all-time highs of over 6,600 points. Further, it was the third consecutive year of positive close for the Sensex (see table below). The year was also witness to ample amount of money flowing into the mid-cap segment of the market helping many stocks (many of them devoid of any fundamentals) post astounding returns. Key gainers / losers over the year
|| FIIs (Rs bn)
||Sensex % gains/
However, as much as the year would be remembered for the record FII inflows and the various reform measures undertaken by the government(s) to help support and accelerate India's economic growth, the surprise dethroning of the 'feel-good' NDA government in May 2004 and the consequent stock market crash would remain at the top of investors' minds for a long time to come. It must be noted here that on May 17, 2004, the Sensex crashed over 840 points (near 17%) intra-day and it was for the first time ever that trading was halted on the stock exchanges for a brief period. However, markets soon found a footing and assurances and re-assurances and even some concrete measures by the UPA government over a period of time helped revive the faith and confidence amongst investors towards the government, which worked in favour of the stock markets.
Some key gainers over the week (NSE-50)
Dec 24 (Rs)
Dec 31 (Rs)
|| 6,617 / 4,228
|S&P CNX NIFTY
|| 2,088 / 1,292
|| 98 / 60
|| 397 / 155
|| 411 / 212
|| 690 / 390
|| 1,599 / 720
As far as trading this week was concerned, after two-weeks of back-to-back gains, the indices continued to march ahead at start of trade on Monday and this was despite the Asian region having being rocked by an underwater earthquake, which consequently led to the tsunami disaster. The following two days of trade were no different as FIIs continued to increase their exposure to Indian equities. Though Thursday's trade witnessed a bout of profit booking, the indices bounced back even more strongly on Friday, ending the year at record-highs re-affirming the positive outlook of investors into 2005.
Some key losers over the week (NSE-50)
Dec 24 (Rs)
Dec 31 (Rs)
|| 407 / 234
|| 1,000 / 510
|| 249 / 110
|| 312 / 101
|| 575 / 321
Consider some of the sector/stock specific stories during the week:
Stocks related to the tourism and hospitality industry remained out of favour on the back of the natural disaster that hit many Asian countries. As per reports, Asian inbound tourist traffic has fallen by about 40% as they have opted for alternative destinations. In case of India also, tourist cancellations are being pegged at about 20%. This affected investor sentiments towards stocks related to the hospitality and tourism sectors, as with tourist inflows slowing down, it may affect the prospects of the industry in the near-term. The key losers during the week included EIH (9%), Thomas Cook (6%), Taj GVK Hotels (2%) and Indian hotels (1%).
Cement stocks also closed the week in the positive. Strengthening cement prices on the back of a pick up in construction activity across the country has helped keep the stocks in favour. Going forward into 2005, with the absence of any significant capacity expansion likely to come on stream, prices are likely to sustain. Key gainers during the week
Banking stocks continued to steal the limelight on the bourses as a number of themes revolve around banking stocks. The sharp rise in non-food credit, expectations of heightened activity on the consolidation front and the possibility of a hike in voting rights at par with the holdings in a bank have all collectively fuelled sentiments towards the sector. Key gainers during the week
Going forward, as investors welcome 2005 with arms wide open and heavier pockets (!), we anticipate tougher times for investors to identify stocks where significant value/growth remains, as most of them have run up quite substantially. Further, while over the long-term, India remains on our BUY radar, the sharp run up in many sectors/stocks in 2004 makes us apprehensive of the momentum sustaining for long in 2005. However, much of this is dependant on the US and domestic interest rates as, while a substantial (substantial) rise in US interest rates could see the FII inflows reverse back to the safer US bonds, significant hike in domestic interest rates could see consumer and corporate spending suffer, consequently affecting the overall growth of the economy. However, to conclude, we continue to maintain that a staggered investment approach with a long-term investment horizon remains the best investment style at the current juncture. Happy investing!
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