Let us first examine how the markets moved during 2002. Starting from 1060 levels at the beginning of the year, the market witnessed the usual pre-budget rally, which took it up to a high off 1205.95 points prior to the budget. This was also the period when the disinvestment programme of the government really took off and companies like IBP, VSNL and CMC were sold.
Just as we thought that a bull market was possibly on the cards, the budget was announced. The reintroduction of dividend tax at full rate was very unfriendly for the market. The downtrend in the market started from then onwards. Even the successful disinvestment programme got a jolt when due to political differences, the further sale of PSU units was stopped.
During the second and third quarters of 2002, the market received some more bad news. After several years of good monsoon, there was a drought. This is always adversely seen by investors since a drought leads to lower agricultural production and falling rural demand.
The global scenario took a turn for the worse. American companies were charged with serious irregularities in their accounting practices and this resulted in Wall Street falling sharply.
It was not all bad news though. The working of manufacturing companies starting showing distinct signs of improvement. The country had seen severe recession in the last two years and this affected most of the key industries. However, during 2002, we witnessed a significant improvement in the working of large sectors like automobiles, steel, cement, manmade fibres, etc. The interest rate scenario also improved considerably. The bank rate was cut and corporates were able to access low-cost funds. In fact, a good portion of the increase in the profits of companies was on account of the reduction in interest cost due to this factor.
There were many losers and many gainers in this game. As we saw, the market started the year on a bullish note, but started falling from March onwards. It hit a bottom of 845.95, but has been recovering since then. Of the sectors that have outperformed in the market, automobiles has been a star. Telco, Indias leading truck manufacturer, has seen its price double. This has been due to the fact that it has made a dramatic turnaround from losses to profits. Major two-wheeler manufacturers like Hero Honda, Bajaj Auto and TVS Motors also witnessed strong growth and the market applauded them. The steel sector saw a rising global demand lead to higher corporate profits. And the biggest gainer was Tisco.
While these industries did well, the old favourites in the FMCG and pharmaceuticals were ignored by investors. Intense competition from imports and lack of demand led to a steep fall in the profits of leading FMCG players like Hindustan Lever, Colgate, etc. In the case of pharmaceutical companies, the high expectation of investors regarding growth were belied. No wonder their shares were up for sale.
The shares of the new economy had triggered a huge rally on the bourses in 1999-2000. However, later, these crashed here as in the rest of the world. 2002 saw some sort of a comeback by the frontline technology stocks. The business environment improved with better order flow from the US. Billing rates were still under pressure, but as the year drew to a close, it appeared as if the worst was over for the technology companies.
The year also saw the media and telecom sectors bite the dust. Lack of orders and huge oversupply hit telecom companies. Pressure on advertising took its toll on media companies. The outlook does not appear too rosy for these two, though.
The public issue market was again very dormant with manufacturing companies hardly entering in the market. We did see one or two good, large offerings from public sector banks like PNB, Union Bank and Allahabad Bank. The pricing was so attractive that investors managed to make profits from these issues.
In the final reckoning, 2002 is a year best forgotten. The market was directionless. Economic recovery was slow and global trends very mixed. Hopefully, 2003 will be better.
Mr Vijay is a Delhi based investment banker and convenor of the BJPs Central Economic Cell.