Oct 23, 2007|
Markets: Taking stock...
Volatility in the stock markets has been the buzzword this year and this was amply demonstrated in the past one month when the index gyrated wildly by a huge margin both in the positive and in the negative. As mentioned in previous articles, factors such as subprime crisis in the US, policies of the central banks both in India and the US, surge in the FII inflows, political uncertainty and the like have impacted the Indian bourses so far. In this article, we shall take a look at how some of the sectoral indices have fared in the year so far.
Sectoral indices: Performance so far
||Price on Oct 19, 2007 (Rs)
||Price on Jan 02, 2007 (Rs)
|BSE Oil & Gas
Commodities: Both the BSE Oil & Gas and the BSE Metal index surpassed the Sensex by a huge margin notching gains of 64% and 59% respectively for the ten months of 2007. This can be attributed to mounting commodity prices, which have enabled companies to enjoy higher realisations. As far as energy stocks are concerned, the rise can be attributed to rising crude prices (beneficial to refineries), inking new ventures in exploration and gas distribution, investing in oil assets abroad and the move to issue oil bonds to OMCs to insulate them from steep global crude prices. Strong demand and improved realisations have also aided the momentum in metal stocks.
Banking: Banking stocks have also garnered good returns in the year so far having raked in gains of 24%. The start of the year saw the Bankex taking a beating on the back of inflationary concerns and steps taken by the RBI to curb the excess liquidity in the system by undertaking a CRR hike. However, post March, interest in the banking stocks was renewed with most of the top banks unveiling capital raising plans to meet the rising demand for credit and also in compliance with the Basel II norms. Going forward, Indian banks face the challenge of maintaining profitability even as rising interest rates start to affect the borrowers' repayment capacity. The need for infusing further capital will also remain strong and having plans to raise big amounts of capital from both the domestic and international markets, any sustained deterioration in global liquidity could affect growth prospects.
Healthcare: Pharma stocks continued to disappoint investors and the BSE Healthcare index has lost 3% in the year so far. Unabated pricing pressure in the US generics market and some of the European markets (notably Germany) continued to dampen investor sentiments. Sharp appreciation of the rupee against the dollar (exports account for around 50% to 80% of total revenues of most of the pharma companies) and rising raw material prices (due to high cost of importing intermediates from China) have also taken its toll. The performance of MNC pharma companies also left a lot to be desired. Going forward, we believe that the pressure on the governments across the world to reduce healthcare costs and the increase in the number of drugs going off patent will remain the cornerstones of the India generics story. Pricing pressure is expected to continue and we believe that this concern has already been factored in the stock prices.
Auto: The BSE Auto index fell by 7% in the year so far. The sector has been facing the heat due to the rising interest rate scenario, which has impacted volume growth especially that of two-wheelers and this was visible during both the June and the September quarters when the motorcycle industry witnessed a fall in volumes by 15% YoY and 16% YoY respectively. This was due to the strict stance adopted by financial institutions towards funding two-wheeler loans. Besides this, growth in the other two segments namely passenger and commercial vehicles had also decelerated significantly in the first quarter of FY08.
Software: Steep appreciation of the rupee against the dollar has, not surprisingly, taken its toll on software stocks with the BSE IT index having fallen by around 13% in the year so far. The rupee has appreciated by around 7% and has had a telling impact on the revenues and operating margins of software companies, which are largely export oriented. Having said that, from a long-term perspective, we believe that these top-tier software companies, with their superior scalable business models and stronger operating metrics relative to their mid-sized peers, will benefit more from the offshoring story, and overall we remain positive on the sector.
Despite the increasing volatility exhibited by markets in recent times, it is imperative for investors to refrain from timing the markets but instead invest in good quality stocks from a long-term perspective. These stocks will continue to reward shareholders with good returns despite the short-term fluctuations witnessed on the Indian bourses.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 17, 2017
Mr Trump is in the White House and the gods are in their heavens; what's not to like?
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407