Dec 17, 2004|
The last three months have seen the Sensex beat expectations. To put things in perspective, an investment of Rs 100 as on September 16 would have fetched a healthy return of 17% as on date. Let us have a look at the factors that led to such robust activity vis-à-vis other leading indices.
Sensex: India Inc. has witnessed a decent run during the last three months with the Index of Industrial Production (IIP) witnessing a growth of 7.9% during 1HFY05 as compared to 6.2% during the corresponding period last fiscal. The capital goods sector has witnessed a growth of nearly 15% during the period, re-confirming the fact that the Indian growth story is far from over. However, in the short term, many stocks are running ahead of their fundamentals. The expansion projects in the face of global events such as the post-quota regime in the textile industry and also the patents regime in the pharma segment augur well for the country. Not to forget the strong IT sector.
Bovespa, Brazil: During the period under review, Brazil's benchmark index gained for the most part only to lose later. To coincide with this is the fact that industrial performance over the last few months has witnessed a dip. To put things in perspective, the production has dipped by 0.4% during October as compared to September while during September, production fell marginally by another 0.2%. Although the economy continues to witness growth, high input costs on the back of rising fuel costs have resulted in industrial performance come under pressure.
Dow Jones: Rising crude oil prices over the last three months did impact negatively on the US indices, as the Dow witnessed a fall in the initial period. Rising unemployment numbers coupled with rising producer and consumer prices did stem up concerns regarding inflation. To put things in perspective, oil prices peaked at US$ 55.67 per barrel in October. However, the election results did bring some cheers to the indices coupled with the subsequent fall in oil prices. Over the period under review, the markets witnessed stagnancy, as shown in the graph above with Rs 100 invested in September yielding the same amount at the current levels.
China composite: Of all the major indices, the Chinese composite index has under-performed during the period under review with Rs 100 invested now fetching Rs 96. Slowing down of the Chinese economy after the recent interest rate hike has resulted in investors booking profits.
The above arguments do point out the fact that India has outperformed other markets based on fundamental reasons. However, the effect of rising crude oil prices coupled with the ignorance of the fact that the FII money is primarily responsible for the over-heating of Indian markets have resulted in major stocks running ahead of fundamentals. We believe and maintain that the investors need to have a cautious approach at the current levels.
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