Despite the recent turmoil, India’s leading stock markets index, the Sensex, ended financial year 2006-07 with double-digit increases.
The Bombay Stock Exchange’s (BSE) leading index gained 15.8% in the fiscal year ended 31 March. But that gain pales in comparison to the stunning 71% increase in the previous financial year ended March 2006, though it is slightly better than the 13% gain in the year ended March 2005.
Overall, the Sensex has gained a whopping 347% in the last four years.
The Sensex was at 11,564.36 points on 3 April 2006, the first trading day of this fiscal year and it closed at 13,072.10 points on Friday, the last trading day this fiscal year.
Over the same period, the National Stock Exchange’s (NSE) broader Nifty index gained 12.31% to close the year at 3821.55.
The Sensex gain of 15.8% for this fiscal gets a different twist when the calendar year is taken as the reference point. Sensex grew 47 % between January and December 2006, but it is down 7% in the first three months of 2007.
The turnover data on NSE and BSE shows a marked slackening this fiscal year compared with the previous year. The combined turnover of BSE and NSE at Rs14 lakh crore was down 32% from a turnover of Rs20.66 lakh in financial year ended March 2006.
Consolidated volume of shares traded on BSE and NSE was down 3.35% for the year.
Money from foreign institutional investors this fiscal was sharply lower as well, down nearly 48% to Rs25,594 crore from Rs48,800 crore in the year ended March 2006, and Rs44,121 crore in year ended March 2005.
Rising interest rates—the central bank again boosted rates on Friday—inflation and fear of a slowdown in US economy were the main culprits towards the end of the year. Though most of these factors are still concerns, several market participants say they are positive about the new financial year and expect 15% to 20% growth through March 2008.
“Our expectation is that the Reserve Bank (of India) is at the end of the rate tightening cycle,” said Andrew Holland, head, strategic risk group, Merrill Lynch. “It has scared enough people. Over the short term, we will see the liquidity situation improving. Once global markets stabilize, we will also be better off.”
But he says a lot depends on how the US market will fare this year. “Once the impact of the ending of the US rate hike cycle kicks in, we will know whether the US economy has a soft landing or not. This will impact on Asian markets,” Holland said.
One reason why market watchers remain generally bullish about the one-year prospects is because of a pervasive expectation of continued, good corporate performance.
“We think corporate earnings will remain strong,” said Prateek Aggarwal, head of equities, ABN AMRO. “We are also entering a capital expenditure cycle. So, we think valuations are fine. Most stocks are trading at 15-15.5 times earnings for 2008, which we think is fine.” Merrill’s Holland is also bullish about corporate earnings.
“India is now a large cap among emerging markets and a mid cap among developed markets. Also, we expect corporate earnings to grow at around 20%. So valuations are not too high,” he said.
But others do see a reduction in corporate profit-growth due to the higher interest costs. “As interest rates increase, we may see some moderation in growth,” said Lalit Thakkar, head of research at Angel Securities. “We do see GDP fall to 8%, from last year’s 9.2%. But I think that is good too. This will also have a moderating effect on corporate earnings. We see corporate earnings slowing by 5-8%. So, earnings growth could be down to about 13%, for next year.”
Meanwhile, “FII flows depend on collections for emerging market funds, which is hard to predict. But with oil prices going down and the Indian stock market showing a mediocre performance even while earnings have been good, I think we can expect India to show up prominently in the investment plans for FIIs,” said Pratik of ABN AMRO.
Mutual funds were one segment where the data on fund size growth was consistent with previous year. The total corpus of investment by domestic mutual funds increased by 53% to Rs3.5 lakh crore as on 29 February 2007 compared to Rs2.3 lakh crore on 31 March 2006.
The total mutual fund corpus was Rs1.49 lakh crore as on 31 March 2005.
But mutual fund data is inclusive of investments in debt schemes and also takes into account the appreciation of price in shares where the funds are invested, unlike the FII data.
Ashwin Ramanathan contributed to this story.