Stock Markets: The second time... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Stock Markets: The second time...

Feb 11, 2004

After three consecutive bearish years for the stock markets, 2003 saw a reversal of fortunes for investors. During 2003, the market capitalisation (market cap.) of the NSE-50 Index (Nifty) gained by an astounding 76%! Here we look at some sectors, which managed to outperform the overall index growth. We look at, in brief, the drivers for the same and also how could things shape up going forward.

Industry% gains
Steel282%
Engineering190%
Diversified172%
Shipping168%
Power166%
Note: Data restricted to NSE-50 stocks

The above table lists down the top 5 gainers in terms of market capitalization in 2003. Let us look at some of the key drivers for the sectors above:

Steel:
The sector witnessed huge gains on the back of improved performances of steel companies, which was primarily a factor of strengthening steel prices (about 15%) and higher volume sales. The insatiable steel demand from China, owing to huge requirements for its infrastructure development needs, strengthened world steel prices. However, going forward, investors need to considerably reduce their return expectations, as according to industry sources, steel prices are unlikely to harden from hereon.

Engineering/Power:
The growth in the engineering sector could largely be attributed to the infrastructure drive currently underway in the country. Further, growth in the power sector has also an important role to play in the growth of the engineering sector, owing to the government's aggressive stand at encouraging the set-up of power generation capacities to meet the current power requirements. The government's intentions are also evident from launch of the Accelerated Power Development Reforms Program (APDRP) and the sops announced by the Finance Minister (FM) during the interim budget presented in January 2004. Further, with strong GDP growth likely to continue, the power sector would continue to show signs of strength going forward.

Diversified:
In this category, we have included two stocks i.e. Grasim, which has a presence in cement, sponge iron and Viscose Staple Fibre (VSF) and L&T, which is an engineering major with presence in the cement sector also. For Grasim, while cement has been a drag on its performance, sponge iron (used by the steel industry) and VSF (used by the textiles industry) saw a cyclical upturn during 2003, which helped the company post improved performance. In the case of L&T, while cement put pressure on the company's performance, it was the contribution from the engineering sector (for reasons discussed above), which helped the company grow during 2003. Going forward, the prospects for both engineering and cement sectors look promising, while the sponge iron and VSF segments could stabilise on the growth front.

Shipping:
The growth in this sector can also be largely attributed to the China factor. Freight rates, both for dry bulk and tankers, witnessed strong growth in 2003. Tanker freight rates gained strength primarily during the first quarter of 2003 when crude oil prices spurted owing to the Iraq war, as consumers tend to build up inventories due to uncertainties with respect to the duration of the war. On the other hand, the cause of the rise in dry bulk freight was owing to the demand from China, as it imported huge quantities of iron ore, coal, coke and other commodities to meet its requirements. Another important development was the passage of the tonnage tax regime, which would lead to substantial savings for shipping companies, which in turn could be ploughed back towards expansion of capacity.

Having said that, the investors should have a cautious approach towards the companies and should make prudent investment decisions depending on the companies' management and valuations. Although, the potential for growth in the long term is immense, at present, the valuations of many companies seem to be stretched. From here on, growth will be the key driver for any further rise in stock prices and to that extent, the emphasis on risks has to be higher than earnings prospects. Besides, with elections in the offing, it is better to be safe than sorry. As somebody once said "there is always a second time in the stock market".

Equitymaster requests your view! Post a comment on "Stock Markets: The second time...". Click here!

  

More Views on News

Top 5 Recent IPO Developments You Should Know (Views On News)

May 12, 2021

So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

How Did Mindtree Perform in Q4FY21? (Company Info)

Apr 20, 2021

Here's the rundown on the company's latest quarterly results.

5 Big IPOs to Look Forward to in 2021 (Views On News)

Jun 19, 2021

A peak into the hype around the IPOs of internet companies like Zomato and Paytm

HDFC Banking and Financial Services Fund: Emphasizes on the Growing Sector (Outside View)

Jun 18, 2021

PersonalFN analyses the features of HDFC Banking and Financial Services Fund and explains the potential this fund has to offer to its investors.

Can You Make More than 100 Times Your Investment? (Profit Hunter)

Jun 18, 2021

The open secret to multiplying your money in forever stocks.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jun 18, 2021 (Close)

MARKET STATS