What drove markets in 2012 :: Business Line

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Sectors likely to benefit from a fall in interest rates and consumer-oriented themes led from the front, while import-dependent sectors such as oil and gas figured among the laggards.

Inflows of $22 billion from foreign institutional investors (FIIs) have powered the Sensex up by 24 per cent this year compared with a 22 per cent fall last year. This was despite slowing industrial production, spiralling inflation, widening current account deficit and declining foreign direct investment.

But what were the sectors and themes that drove these gains? Sectors likely to benefit from fall in interest rates and consumer-oriented themes led from the front, while import-dependent sectors such as oil and gas figured among the laggards.

Overall, the market rally was led more by expectations of a better future than by improving profit growth on the ground.

While the trailing twelve-month earnings of the companies constituting the BSE Sensex index grew at a docile 8 per cent, the index recorded a 24 per cent gain in the last one year.

FII INFLOWS

FII inflows clearly drove the rally, helped by policy initiatives announced by the government post-September. The equity markets saw net inflow of $22 billion in the last one year, compared with $300 million net outflows in the previous year.

Though the benchmark indices delivered healthy double-digit returns over the year, they hid significant divergence between stocks. While some sectors and stocks managed to outperform the broad market, others barely participated.

CONSUMER TO THE FORE

Banking, media, FMCG (fast moving consumer goods), consumer durables and realty were the major gainers in 2012. For FMCG and consumer durables, it was the second successive year of winning streak. But what drove up these sectors and stocks? The reasons are many.

Rate cut hopes kept the interest rate-sensitive sectors such as Banking, Realty and Auto on a firm wicket. In the banking space, even as private sector banks led the rally, asset quality concerns weighed down their public sector counterparts.

The BSE Bankex Index gained 54 per cent in the last one year, higher than the 32 per cent gains for the CNX PSU bank index. The trailing twelve-month revenues and profits of the companies constituting the Bankex index rose 22 per cent and 25 per cent, respectively.

But what was notable was the divergence within sectors. Stocks of private sector banks such as Yes Bank (88 per cent) IndusInd Bank (81 per cent), Axis Bank (64 per cent), ICICI Bank (64 per cent) and HDFC Bank (62 per cent) were the key gainers, while public sector banks such as Punjab National Bank (4 per cent) and Bank of India (14 per cent) hardly gained.

CNX Media Index closely followed Bankex to record 53 per cent gains on a year-to-date basis.

Here again, mandatory digitisation helped Hathway Cables (149 per cent) and Dish TV (34 per cent), improved financial performance helped the 75 per cent jump in Zee’s stock. But there were losers too.

Deccan Chronicle Holdings was the top loser, falling 83 per cent since the beginning of the year. Other losers include Shree Ashtavinayak Cine Vision (18 per cent decline) and HT Media (15 per cent decline).

In the case of consumer durables, all the stocks gained. The inclusion of jewellery stocks such as Titan Industries (72 per cent) and Gitanjali Gems (58 per cent) lifted the index performance. Whirlpool was the top gainer, raking in 75 per cent returns on a year-to-date basis.

The BSE Consumer Durables index registered gains of 49 per cent despite a moderate 14 per cent growth in revenues and a 13 per cent drop in profits for the constituent companies.

The BSE Realty index was the surprise gainer of the year, rising 48.8 per cent in 2012, despite a 17 per cent and 32 per cent year-on-year decline in the trailing twelve-month revenues and profits, respectively, of the companies.

These stocks seem to have been re-rated on rate cut hopes. The sensitivity of realty companies’ earnings to interest rate is two-fold.

A lower interest rate will not only improve real-estate sales but is also expected to benefit the bottom line of the highly leveraged companies through a lower interest outgo.

But the markets did show some discernment in choosing between realty stocks. Stocks of low leverage companies such as Anant Raj (131 per cent), Prestige Estates (127 per cent) and HDIL (117 per cent) witnessed the sharpest jump.

In contrast, the stock of Parsvanath continued its second consecutive losing streak, falling 8 per cent during the year.

BSE FMCG index featured among the top five gainers for the second year in a row, thanks to the insatiable demand for consumer goods.

The 48 per cent rally in the BSE FMCG Index came on the back of a 12 per cent and 19 per cent year-on-year growth in revenues and profits for the trailing twelve-month period.

Within the FMCG space, alcohol major United Spirits (285 per cent) and United Breweries (143 per cent) raked in the highest gain. Stocks of consumer names such as Nestle and Hindustan Lever gained 16 per cent and 29 per cent, respectively.

THE LOSERS

Sectors with global influences and those sensitive to a weak rupee took a beating in 2012. IT, metals, power and oil and gas underperformed the broad markets.

While the IT index declined 3.5 per cent in the last one year, power (9.1 per cent), metals (11.2 per cent) and oil and gas (11.6 per cent) registered paltry gains in 2012.

The slowdown in developed economies such as European Union and the US leading to slower client additions weighed down on IT stocks, negating the benefit from a weak rupee.

While the heavyweights such as Infosys (17 per cent decline) and Wipro (6 per cent decline) dragged the index, stocks of midcap IT companies such as Financial Technologies (98 per cent), Oracle Financial (65 per cent) and Tech Mahindra (60 per cent) provided some respite.

Metal stocks again faced the brunt of slowing consumption globally in light of the economic recession.

While the trailing twelve month revenues of the companies constituting the BSE Metal Index remained flat, profits slumped 41 per cent during the same period.

Index heavy weight Jindal Steel and Power (7 per cent decline) and state owned NMDC (2 per cent) dragged the overall Metal index returns.

However, the stocks of JSW Steel and Bhushan Steel managed to deliver 44 per cent and 43 per cent returns in 2012.

Underutilisation owing to shortage of feedstock led to dismal performance by power stocks.

After bottoming out in 2011, JSW Energy (69 per cent), CESC (52 per cent) and Reliance Infrastructure (51 per cent) retraced some gains. But, stocks of GMR Infra (13 per cent decline), Torrent Power (13 per cent) and Crompton Greaves (11 per cent decline) found little favour among investors.

The under-recovery woes of the oil companies were further accentuated by soaring crude prices and a weak rupee.

Despite the 33 per cent jump in revenues, profits declined 4 per cent year-on-year for the companies comprising BSE Oil Index, during the last twelve months.

The stock of BPCL and Castrol outperformed the benchmark indices delivering 47 per cent and 41 per cent returns respectively since January 2012. GAIL (decline of 9 per cent) and OIL India (8 per cent) remained draggers for a second successive year.