Global markets: a sectoral analysis

Global markets: a sectoral analysis
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First Published: Wed, Mar 12 2008. 01 33 AM IST

Updated: Wed, Mar 12 2008. 01 33 AM IST
The crash in global equity markets has been across almost all sectors, with very few exceptions. Data from the MSCI Barra sector indices show that the only industry group that has shown positive returns this year (data till 7 March) has been the materials group. This group is up 0.5% in emerging markets.
For the world markets as a whole, however, even the materials group is in the red, down 4.77% this year. Within the materials group, the metals and mining industry has done the best, earning a return of 3.07% in emerging markets and 1.03% in world markets as a whole. The commodities boom has rubbed off on these stocks.
The other industry group that has been spared the worst of the carnage, with losses in single-digit percentages, is consumer staples. This group has lost 6.03% in emerging markets and 8.72% in the world markets. Within the group, tobacco has been an outperformer, losing a mere 2.51% in emerging markets. It isn’t easy to kick the habit.
Rather surprisingly, the health care group, also a traditionally defensive sector, hasn’t done all that well in global markets, losing 11.19%. But the sector hasn’t done too badly in the emerging markets, losing only 4.45%. Within the sector, emerging-market pharmaceuticals have done even better, down just 3.63%. Utilities, also traditional defensive, have fared rather badly, losing 14.75% in emerging markets and 11.8% in world markets.
The financials, of course, have been massacred, falling 18.77% in world markets and 16.99% in emerging markets. Mortgage firms have been the worst hit, down 31.9% in world markets, although those in emerging markets have got off lightly, losing 8.78%. Unsurprisingly, capital market players have been butchered, losing 20.28% in emerging markets and 23.1% in world markets. Rather surprisingly, real estate firms in emerging markets have lost 26.15%, while the comparable number for the world markets is a negative 15.64%. That’s probably because of the irrational speculation in those stocks in many emerging markets, including India.
The IT index is down 7.73% this year in emerging markets and 17.41% in the world markets. But the sub-index of most interest to Indian players, the IT services index, is down 16.96% for emerging markets and 13.66% for world markets.
Have the sectors in the Indian market behaved in a similar fashion? Well, the BSE Bankex is down 25.9%, compared with a fall of 14.65% for commercial banks in emerging markets. The BSE FMCG sector is down a mere 5%, in keeping with the trend in consumer staples elsewhere. But the BSE health care index is down 13.6% and the IT index has lost 19.5%. The magnitude of losses in the Indian sectoral indices has been higher in all the sectors, expect for FMCG.
Bajaj Auto’s financing business to the rescue
Bajaj Auto Ltd’s share price has recovered more than 20% from the 52-week low it hit on Monday, partly because of news reports that the group’s two-wheeler financing business will be transferred to it after the de-merger process is over, and partly because the selling in its shares was a bit overdone.
The company’s shares have been under pressure for more than a year because of flagging sales and new disclosures about Bajaj’s stake in its insurance ventures. But the selling got intensified recently because of the company’s exclusion from most stock market indices, which is a result of its de-merger process.
Needless to say, the latest bout of selling was due to technical factors, which presented value players a good buying opportunity. If anything, the outlook for the company’s core auto business has gotten better post the budget. The 4% cut in excise duty has translated into price cuts, which should eventually lead to some improvement in demand. To add to that, the cut in personal taxes will lead to higher disposable incomes, which, coupled with the farm loan waiver and other rural measures, may also help demand.
The possibility of the financing business being housed with the core auto business would help things further, as a better co-ordination between the sales and financing divisions would result in more aggression in the market. Having financing as an in-house arm or a subsidiary company is a global norm, followed by even Tata Motors and Mahindra and Mahindra in India. Bajaj Auto investors would be glad to see that it’s no different with their company.
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First Published: Wed, Mar 12 2008. 01 33 AM IST