Muted H1CY10, Sensex still ahead of peers

No one would have even dreamt that the Sensex would stage a smart come back in 2009 after a disappointing 2008. The year 2009 was full of exuberant for the Sensex as it gave best yearly performance since 1999. The global economic indicators signaling recovery led the Sensex to zoom 80% in 2009.



While entering in 2010, it was expected that the Sensex may consolidate and take a breather after such strong gains in 2009. Most of the market pandits were proved right in the first half of 2010, where the index barely moved an inch from its close of 2009. The Sensex rose by mere 1.33% in H1CY10. The Sensex mainly traded in a range of 16000-18000 where in 16000 was the strong support and 18000 was the strong resistance.

The Sensex carried its momentum and started year 2010 on a positive note. The index could not managed to sustain its gains and slid as worries over the global economic front erupted. The euro zone problems owing to Greece’s debt concerns, US President Barack Obama's decision to put restrictions on banks along with the Reserve Bank of India (RBI) hiking the key rates in January 2010 pulled down the index heavily. The Sensex required some positive vibes to get boosted. Finally, the Sensex was blessed after the Finance Minister Pranab Mukherjee presented market friendly Union Budget 2010-11, lifting the index upwards. The Sensex also welcomed the European Union’s bailout package for Greece along with India’s strong index of industrial production (IIP) data for January 2010 at 16.7%. In such positive atmosphere, the index ignored RBI’s March 2010 monetary tightening.

It has always been noticed that if there is rise at some point of time then one has to also face the fall. This is what has happened with the Sensex. As we can see from the chart, the index happiness could not last long. The pessimistic news back home spooking the index were spat between the Insurance Regulatory & Development Authority (IRDA) and Securities & Exchange Board of India (SEBI) over unit linked insurance plan (ULIPs) along with dismal IIP at 15.1% for February 2010. It seemed that such negatives were not enough to push the index down. The other news which dragged the Sensex further were the credit rating agency Standard & Poor's (S&P’s) downgrading Greece's rating three notches down from BBB+ to BB+ or junk and Portugal’s rating two steps down from A+ to A-. The deepening euro zone debt crises worries and fear that it might spread to other countries did not allow the Sensex to rise. The index continued its southbound journey with no hopes of recovery owing to persisting euro zone debt concerns.

At last, the market players spotted few positive triggers, starting with Ambani brothers ending non-compete pact, pulling the Sensex upwards, followed by India’s gross domestic product (GDP) growth at 7.4% in FY10, and Fitch Ratings upgrading the India's local currency rating outlook raised to stable from negative. However, the Sensex once again fell after the US Federal Reserves gave a cautious outlook for the global economic recovery. This made the investors jittery on concerns that we are not yet out of the woods.

During the first half of 2010, BSE consumer durables (CD) surged the most with gains of 25.11% as India’s industrial production output continued to grow with a robust pace. The defensive sectors like BSE fast moving consumer goods (FMCG) and BSE health care (HC) rose by 15.71% and 14.56% respectively. The auto sector rode on the healthy sales numbers by the auto firms in first half of 2010, as BSE Auto surged by 11.94%. On the flip side, interest rate sensitive sector BSE Realty declined the most by 17.09%. The concerns on the global economic recovery dragged down BSE Metal by 15.49%.

Among ‘A’ group stocks, stake sale news led the tremendous interest in Hindustan Copper as the stock surged 74.66%, followed by Titan Industries that rose by 65.18% and Cadila Healthcare that advanced by 52.17% in the first six months of 2010. On the losers’ front, Shree Renuka Sugars slid the most by posting losses of 38.86%, followed by Suzlon Energy that declined by 37.20% and NMDC that fell by 37.07%.

The foreign funds flew in and out of the Indian equities in the first half of the year 2010. The strong foreign institutional investors (FIIs) inflow during the fag end of the H1CY10 helped the Sensex to end positive. FIIs continued to show interest in the Indian equities as there was no clear picture on the growth of the developed economic recovery. The Indian economy showed strong growth over the last one year. In the first six months, the FIIs bought stocks worth Rs31,500.70 crore, while the domestic institutional investors (DIIs) sold stocks worth Rs8,628.90 crore.

A yellow metal, gold had a spectacular run in the first half of 2010. The gold posted remarkable 13% gain as the investors’ turned its attention towards gold owing to global economic concerns weighing on the world equities. The present scenario indicated that the gold may witness more gains ahead as the equities around the globe search for the rays that clear the dark clouds looming on the economic horizon.

On the global front, the concerns on the global economic recovery pulled down the major indices across the world except for the Sensex and Dax 100 (Germany), which ended the H1CY10 in the green. China’s Shanghai Composite was hit the most during the first half of 2010, falling 26.82% on the signs of the Chinese economy slowing down. The Sensex gained 1.33% in the first six months mainly on account of healthy domestic data and liquidity. The other indices posted losses in the range of 6-13% as worries over the euro zone debt situation haunted the equities globally.

Road ahead for the markets: In the second half of 2010, the domestic markets may remain volatile. The monsoon will be the key factor that may determine the future path of the markets, as good monsoon eases inflation concerns. The rising inflation has always remained a biggest concern for the markets and then the worries about the RBI hiking the key interest rates to tame inflation. The earnings of top Indian Incs may also impact the markets which are expected to be a bit on encouraging side. On the global side, the markets will also watch how the euro zone nations tackle its fiscal problems. Most importantly, the FIIs interest in the Indian markets may also decide the future course as it was the case in the first half.
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