The rise in interest rates and the volatility in the global commodity prices pushed investors to sell shares of banks, steel and construction companies.
The shares which primarily went under the hammer during the period were two of Indias largest banksState Bank of India and ICICI Bank.
FMCG is considered a defensive sector, says Ramanathan K, chief investment officer, ING Investment Management. Typically, FMCG sector consumption does not go down significantly due to economic slowdown or global issues. Thats why the valuation of these companies trade at a premium to the market and these stocks held on well. he added.
The market value of A group shares which include 197 companies, lost R13.55 lakh crore during the past one year to R48.19 lakh crore from R61.74 lakh crore, while the market capital of BSE companies crashed by 19.2% to R59.55 lakh crore on October 11, 2011.
Mutual fund managers say the economic slowdown took the icing off the bank shares as it is linked to the economy. The credit growth has slowed down as companies shy away from borrowing loans to expand their capacities.
The banks are the barometer of the economy and they are also a significant portion of the index, says Sandesh Kirkire, chief executive officer at Kotak Mahindra Mutual Fund.
When the pull out happens, typically a larger portion of the market has to bear the burnt. The rising interest rate also impacted the banking sector, he added.
The 30-share benchmark index or Sensex fell by 18.7% or 3803.42 points to 16536.47 on October 11, 2011 from 20339.89 on October 11, 2010.
Scams and alleged bribery scandals in banks pushed the bank shares out of the investors radar.
The domestic factors which have affected the market in the last one year are the 2G scam, realty scam, mining scam, continuous rate hikes by RBI 12 times, killing the growth of the Indian companies, says Kishor P Ostwal, chairman and managing director at CNI Research firm. Apart from the domestic issues the Japan earthquake distorted the entire Asian economies. This was followed by defaults of Iceland, crisis in Europe particularly PIGS (Portugal,Ireland,Greece and Spain) countries. Finally the S&P downgrade of the US created a mayhem on the Street, he added.
Small and medium companies have not felt the pinch as foreign institutional investors (FIIs) prefer large cap shares. In small and mid-cap most of the FIIs stayed away, while FIIs with large exposure did not hesitate to exit even at huge losses, says an analyst from a domestic brokerage firm.
Diversified conglomerate Reliance Industries lost R79,597 crore in market value while its rival Oil and Natural Gas Corporation lost R45,224 crore in market value during the past one year.
Even as telecom stocks were hammered, Bharti Airtel stood out of the herd as the operators hiked tariff marginally and its restructuring of its global mobile telephony business started showing signs of a pick-up. The company moved up by three notches to seven from 10 last year by adding R12,209 in market value.
Investors took a contrary view of software shares. Tata Consultancy Services held on to investors interest, bellweather Infosys and Wipro lost out. TCS, snatched the third
position by adding R19,660 crore in market value.
Sudhakar Shanbag, CIO, Kotak Life Insurance feels that the equity markets are very volatile due to the global developments as also domestic factors. The range for the market at this stage is between 4800-5200 for Nifty. Investors with short-term horizon may want to avoid this volatility; however the levels are very attractive for long term investors.