Mumbai: The BSE’s benchmark 30-share Sensex has declined 3.7% from its peak on 2 August, as high stock valuations deterred investors. A look at sectoral indices shows that realty, telecom and power indices have shed the most since then.
Fourteen of 18 sectoral indices have lost value since the market peak, with the BSE Realty index, BSE Telecom index and BSE Power index shedding 7.61%, 6.09% and 5.84%, respectively. These sectors had posted strong gains since the start of the year to 2 August, and had logged gains of 72.70%, 28.01% and 16.95%, respectively.
A gush of liquidity, especially from mutual funds and retail investors, sent demand soaring for some stocks, and in turn these overshot their value. “Wherever people found suppressed valuations, people stocked up. Power sector also faced the same issue," said Dhananjay Sinha, head of research, Emkay Global Financial Services Ltd.
“People were just looking for any positive announcement, and stocking up relevant stocks. However, with realities lagging behind stretched valuations considerably, these sectors and stocks have started correcting," added Sinha.
The same was true for real estate stocks. Things had started looking up for realty companies after the government encouraged affordable housing with various incentives and gave it infrastructure status earlier this year.
However, the demand scenario was not very promising, and implementations of the Real Estate (Regulation and Development) Act (RERA) from 1 May, has led to near-term challenges.
“For real estate companies, demand is not picking up, and the RERA implementation has led to a temporary stalemate situation,’ said Deven Choksey, group MD at KR Choksey Investment Managers Pvt. Ltd.
The top loser in the real estate sector has been Housing Development & Infrastructure Ltd, which has eroded 35% of its value since 2 August. Unitech Ltd and DLF Ltd followed with declines of 19.59% and 16.11%, respectively
Concerns over tepid revenue growth and wafer-thin margins have plagued the telecom sector since the entry of Reliance Industries Ltd’s telecom venture Reliance Jio a year ago. Stable quarter-on-quarter revenue growth in the three months to June was encouraging after two quarters of sequential declines, but concerns still remain, HDFC Securities said in a 20 September note.
“The potential tariff war led by the IUC (interconnect usage charges) cut, downward repricing owing to aggressive bundling and the impact of Jio feature phone on the segment remains unknown," it said. “Further, an increase in capex/opex to ramp up LTE (long-term evolution) capacity could also keep margins under pressure."
The telecom stocks that were hammered the most were Reliance Communications Ltd, Tata Teleservices Maharashtra Ltd and Idea Cellular Ltd, which shed 20.4%, 20% and 18.08%, respectively.
The power sector has struggled with its own set of challenges. In a report on 8 September, Fitch Ratings said tariffs are taking a hit mainly from the prevailing electricity demand-supply dynamics, lower coal costs and a decline in renewable tariffs.
Distribution utilities are shying away from signing new long-term power purchase agreements for both thermal and wind capacity while awaiting clarity on the auction route for wind power, supported by the availability of cheaper spot electricity, Fitch said.
The top losers in power sector index in the period were Suzlon Energy Ltd, Siemens Ltd and GMR Infrastructure Ltd, which have declined 16.53%, 13.26% and 13.01%, respectively.
“Power stocks are victims of policy paralysis, and there is a lot of ambiguity mainly related to tariffs which deters investors," Choksey said.