Indian capital markets – Flashback 2010 & the last decade

January 3, 2011

(Nipun Mehta is a veteran private banker with many years of experience across Asia. The views expressed in the column are his own and not those of Reuters)

3972, that’s where the BSE Sensex was on Jan 2001 at the start of the decade, it’s a shade above 20,500 at the end of it in 2010, a more than fourfold rise.  Information Technology, which was the darling of investors then, gave way to the Consumption and Infrastructure story.

Here’s a walk down memory lane and some interesting facts for the last decade and of course the last year (2010).

The last decade (2000-10) was probably one of the best for the Indian capital markets, even a shade better than the 90s decade which actually established the base for the ‘00s decade through economic liberalization. The 90s got blemished and diluted due to 2 domestic scams – Harshad Mehta and Ketan Parekh – while the ‘00s had the global sub-prime crisis that brought the world to its knees.

The difference was, the last 10 years saw access to global capital become easier for the Indian corporate sector and size multiplied through some of the largest global acquisitions by Indian conglomerates.

Risk-aversion, Carry trade, as well as sheer growth of the BRIC economies ensured that FII flows towards Emerging Markets and towards India grew multifold, creating a unique high liquidity equation.  Basically the world sat up and noticed India in the ‘00s. What could the next decade have in store for us?

Fast-forward into 2010 and the final year of the decade eventually turned out to be an interesting year for an Indian investor. Returns on the Sensex at around 15% were lower than the 81% returns of 2009. Surprisingly, Gold and Silver gave higher returns in 2010 than the equity markets, and significantly higher at that.

This despite the fact that the highest ever quantum of FII funds were pumped into the Indian equity markets. Will the FII flows continue into the Indian equity markets 2011 with the same intensity given the (slow but) anticipated turnaround of the developed markets in the next 12 months?

Globally speaking, the crisis in Portugal, Greece, Ireland, Spain etc ensured that the risk aversion continued and that funds moved to safer, better performing economies. The much looked forward to turnaround in the USA and the Western economies happened, but at a much slower pace than expected.

In the domestic space, successful stories of 2010 included Automobiles (consistently large volumes), Banking (consistently high net interest margins and the simultaneous growth of both the PSU and private sector Banks), IT (successfully overcame reduced orders from US companies), Pharmaceuticals and Metals.

Sectors that eroded investor net worth included Infrastructure, Real Estate, Project companies, Power, Media etc. Sectors like Sugar and Fertilizers showed volatile performance and returns.

How different will 2011 be? Watch this space!

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