The benchmark BSE Sensex declined 1.2% in the first three months of Samvat 2068, remained flat in the next three months and fell 2.8% in the next three. However, it recouped most of the losses towards the end of the Samvat year, clocking gains of nearly 12% in the last three months. The year began on a pessimistic note, but the policymakers finally managed to end the policy logjam, ensuring that the Samvat 2068 ended on a positive note, said Bhupinder Sethi, head, equities, Tata Asset Management. The announcement of the quantitative easing programme (QE3) by the US Fed together with ECB's bond buying programme also boosted sentiments.
In September, the government had unleashed a wave of big bang reforms, allowing foreign supermarket chains to enter the country and international airlines to invest in domestic carriers, besides announcing the divestment of four public sector units.
The government had also hiked the price of diesel by R5 per litre and capped the supply of subsidised liquefied petroleum gas. This prompted several foreign brokerages, such as Morgan Stanley, Deutsche Bank and Citigroup, to raise their Sensex targets for the year ahead.
Foreign institutional investors, the largest drivers of Indian equities, shopped for equities worth about $18.4 billion during the year, of which shares worth about $8.6 billion were purchased in the first six months and about $9.3 billion in the next six.
Market participants expect the FII floodgates to open further in Samvat 2069 if the reform measures go through. The quantitative easing in the US and Europe may also whet the risk appetite, which may bring in higher FII flows into India in Samvat 2069, they said.
Defensive sectors, such as FMCG and Healthcare, emerged the best performers in Samvat 2068 with gains in excess of 25%, while Metal (-11%) and Power (-9%) ended up as the worst performers.
Investors flocked to defensive sectors as they were perceived as safe bets in an uncertain market because of their earnings visibility. Metal stocks were hammered as international metal prices cooled off during the year, while infra stocks took a beating because of the high interest rate environment, said Rikesh Parikh, VP, market strategist, Motilal Oswal Securities.
During the year, the Reserve Bank of India (RBI) surprised the market with a 50 basis points cut in key policy rates, but did not effect more cuts despite pressure from the government and India Inc. The central bank also lowered the cash reserve ratio by 175 bps during the year, infusing much-needed liquidity into the banking system.
The market is pinning its hopes on further cuts in interest rates in Samvat 2069. However, inflation may force the RBI's hand to maintain a status quo, fear industry watchers. My guess is that the central bank will look at how the government's policy changes get implemented on ground and assess the inflation numbers before taking a call on interest rates, said Sethi. He pointed out that inflation had become structural in nature because of supply-side bottlenecks and the high fiscal deficit. Global concerns may play spoilsport in Samvat 2069, said industry observers. Some of the global issues such as the the slowdown in Europe and the problems surrounding its currency are structural in nature and may resurface next year as well, cautioned Sethi.