NEW DELHI - Though Indian stocks are
considered among the most volatile in the world,
recent market analysis has shown that the returns
for investors are the best among all the top
markets globally, including the US, UK and Asian
and European bourses.
Currently, the stock
market is in the midst of an unprecedented bull
run, with the benchmark index of the Bombay Stock
Exchange (BSE) having breached the 13,000 and then
the 13,500 mark for the first time in history.
The BSE 30-share index Sensex has provided
an average daily
return of about 0.2% over the
past year, which is double the return by its
nearest rival, the South African index.
All other major world stock indices,
including those in the United States, the United
Kingdom, France, Hong Kong, Singapore, Australia,
Malaysia, Mexico and Japan, have recorded a daily
average return of below 0.1%.
Total Indian
investor wealth has risen to more than Rs34
trillion (US$759.75 billion) from Rs31 trillion on
April 20 when the Sensex first hit 12,000. The BSE
Sensex posited a net profit of Rs220 billion in
the July-September quarter. Since September 15,
the Sensex has gone up by about 8.4%, the BSE
index for banking companies improved by more than
15%, and that of information-technology (IT) firms
by more than 12.2%.
The Indian economy
logged 9.2% growth in the second quarter, the
highest rate in 15 years. The main drivers of this
rise were hotels and communications at 13.9%,
manufacturing at 11.9% and construction, which has
come off its high 12.3% growth last year.
Foreign funds have returned with a
vengeance after dumping $2.5 billion worth of
stocks during the May-June tumble. The net
investment so far this year is more than $5.5
billion, still a slower pace than the $10.7
billion in 2005. However, since June 14, they've
bought local shares worth more than $3.5 billion,
surpassing the amount they sold during the rout.
The BSE Bankex index, comprising 18
banking stocks, including such giants as State
Bank of India, ICICI Bank and HDFC Bank, has risen
more than 23% since April 20 when the market first
hit 12,000.
Banking stocks, followed by
IT, have emerged as the biggest gainers in the
wake of robust quarterly results, strong credit
growth and capital raising initiatives, adding
more than Rs450 billion during the 12,000-13,000
journey to a total of Rs2.7 trillion.
In
other sectors, the combined market cap of 10 IT
stocks (which again have reported very good
quarter results) present on the index has
increased by more than Rs350 billion to nearly
Rs3.5 trillion.
India's top
software-services companies, TCS, Wipro and
Infosys Technologies, have overtaken market
expectations by clocking nearly 50% growth in
revenue (48.24%) and net profit (48.52%) during
the quarter ended September 2006.
Infosys
leads the chart with operating margins of 32.14%
(32%), followed by TCS at 28.27% (30.25%) and
Wipro with 21% (20.91%).
Finance Minister
P Chidambaram has said that the surge in the
Indian stock markets has been orderly and
attributed it to improved corporate prospects and
falling oil prices.
On India's growth
performance, Chidambaram said: "The fact that the
economy recorded the highest growth of 9.1% in the
first half of any fiscal since economic reforms
began in 1991-92 makes us doubly happy. I hope the
current year turns out to be one of the best years
of economic growth."
Deepak Lalwani at
London stockbroker Astaire and Partners Ltd said:
"The India story remains positive. A strong
first-quarter GDP [gross domestic product] figure,
better-than-expected second-quarter results from
the IT majors, international markets at year
highs, lower energy and commodity prices and a
return to emerging markets by institutional
investors have helped push the Sensex to new
historic highs.
"Even if the US economy
does slow down, India is relatively better off
because only about 15% of GDP comes from exports
as the country has a huge domestic market,'' said
Lalwani.
High
volatility However, one has to be cautious
still. The overall mood is still less euphoric
than the heady bull run at the start of the year
that sent the benchmark index to a peak on May 11,
only to be savaged by an emerging-markets selloff
that knocked it back 30% by mid-June.
Analysts have said that the rally this
time is not broad-based and is restricted to a
handful of stocks in select sectors. The rise is
almost entirely driven by stocks from the services
sector, mainly information technology, with
manufacturing taking the back seat.
"The
major difference is that this time there is no
euphoria. The market may be at a new high but
there are a large number of stocks not at a new
high," said Jayesh Shroff, fund manager at SBI
Mutual Fund. "Retail participation is still not
near where it was in May."
Indeed, along
with the high gains from the market, the
volatility of the crucial stock index is also the
highest in India. The existing level of volatility
in the Indian market is still more than in most
major markets. Apart from India, only Mexico,
Brazil, Japan and South Africa have recorded an
average daily volatility of more than 1% over the
past one year.
The volatility ratio
recorded an all-time high of 12.55% on May 22 -
the day when Sensex recorded the highest intra-day
fall of 1,111 points. However, the daily average
volatility has been on a steady decline over the
past few months after reaching as high as 3.25% in
June. It has bordered at the 1% level over the
past couple of months, except for a few days when
it rose to nearly 2%.
The volatility gauge
has been below 1% in comparatively mature markets
such as the US, the UK, France, Hong Kong,
Singapore, Australia and Malaysia.
An
analysis of the volatility index of BSE Sensex
during the April-September period in 2006 shows it
peaked in the May-June period at 2.55 and 3.25. It
then declined gradually because of strong foreign
institutional investor inflows and improving
investor outlook. Volatility declined to 1.97% in
July and then to 0.67% in August. Since September,
it has hovered between 1% and 1.6%.
But
there are enough grounds for hope. Morgan Stanley
in its India strategy report has noted that as the
demand is growing and Indian companies are
operating at full capacity, they are now going for
expansion. The report said capital expenditures by
companies are likely to go up by 50% in 2006 and
40% in 2007.
The chairman of DSP Merrill
Lynch, Hemendra Kothari, has said India continues
to be a great growth story. "[The] Indian economy
is growing at around 9% and companies are showing
better than expected results. Overall, it is a
great opportunity for investors,'' he said.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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