End of a turbulent year

S R Kasbekar

Year 2001 has ended with the Sensex gaining 78 points to reach 3262 but down by 9.8 per cent over 3955 recorded on January 1, 2001. During the past 12 months, investors have lost approximately Rs 2,21,527 crore and companies have suffered an erosion in their market capitalisation. Events at home left investors, small and big, fund managers and foreign institutional investors in bewilderment.
The market experienced volatility in volumes and prices caused by a crisis of confidence. The BSE that opened at 3955 rose to 4438 on February 15. It went down to 4247 on budget day. The good budget lifted market sentiments to pull the index to 4272 the next day. But the rally proved short and the index continued a downward spiral to hit 3291 on July 9 when rolling settlement replaced badla.

The broking community, miffed by the government’s efforts to bring about transparency, hammered the market down. The bearish sentiment that gripped the market continued more or less in the subsequent period till September 11 kicked the bottom out of the market, with the Sensex hitting 2600 by September 21. The subsequent period was marked by wonky movement in volumes and scrip prices.

The year was marked by scams and financial irregularities galore. The Calcutta Stock Exchange payments crisis, Ketan Parekh episode, Global Trust Bank imbroglio, the Anand Rathi episode, UTI’s suspension of the US-64 repurchase, all prevented a sustainable rally that could have been possible because of a good budget and agriculture. The political environment — thanks to the Tehelka episode, terrorist attacks on Parliament and a threat of looming war — only abetted the crisis of confidence. The lacklustre showing of companies in the latest quarter also aided the bearish sentiment.

If a few scrips did defy the overall sentiment, it was because of their sound fundamentals. Dr Reddy’s Labs, IBP, Bajaj Auto, BPCL, Hero Honda and Ashok Leyland did recover at the year end. Cement, auto, pharma, banks and FMCG sectors marked gains while telecom, steel and IT lost. In market capitalisation terms, Hindustan Lever, Wipro, Reliance Industries, Reliance Petro and Infosys gained. Predictably, Himachal Futuristic, DSQ Software, GTL, SSI, NIIT, MRF and Zee Tele lost.

Clearly, investors still care for individual performances and that should spur companies to spruce up their showing. Historically, during the past 10 years, the price/earning ratio has been nearly 40 during bull runs and around 10 at the bottom levels. Only an improved economic scenario marked by a global recovery can spur investment sentiment. And expectations of future returns can buttress it. Else, debt with assured risk-free returns will replace equity.