A new trend is emerging in the stock markets these days, or rather, the conspicuous absence of one!
The bull run on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) over the last six months has seen the absence of a sectoral leadership, an industry that can single-handedly pull up the indices, a sharp contrast to the past 15 years, researchers said.
The global financial crisis, coupled with a weak local macro-economic situation, has been attributed as the main reasons, together with the absence of most e-commerce firms from the bourses, a sector that has seen exponential growth in the last 5 years.
While corporate recovery is still incomplete, expensive expansion programmes and high cost of debt have turned most sectors laggards for investors, prompting a stock-specific approach.
“This was not the case earlier,” said Arun Kejriwal, director at Kris Securities. “The late nineties saw the cement sector, while technology ruled the show in 2000 during the dotcom boom. This was followed by sectoral leadership — capital goods and real estate in 2003 and 2004. I think the de-growth in the economy is one of the reasons,” he added.
Different sectors, including real estate, healthcare, banking and consumer goods, were the key market movers in the last five months. The Sensex rose 180 points in January-February and 817 points in April-May.
Compare this with early 1996, especially in January and February, when the then market favourite ACC — it was the largest in its space and dictated price trends —shot up 9.5% to Rs 3,175 a share, pulling up the Sensex by 1.5% during the period.
In 2003, real estate and capital goods led the rally, and the Sensex gained 1,629 points during April-October. Engineering major L&T, one of the leaders of the rally, jumped 120% to Rs 407 during the same period.
“Cement was the leading pick in 1996 and ACC dominated till the Harshad Mehta scandal pulled back the markets,” said N Arunagiri, MD of Trustline Holdings. “Later, the trend was followed by capital goods. At present, there is no visible sector leader, mainly due to a muted growth outlook. There is no growth in the US, Europe and even commodities are struggling,” he added.
Some market participants believe the trend is beginning to change. “There are some sectors such as e-commerce and technology start-ups, which have seen huge growth in the last 4-5 years. But since most of them are not listed, their leadership status is not helping the bull run,” said R. Venkataraman, MD of IIFL Group.
“Themes, including quality and sustainability and reforms, are showing the way,” said M Sathyanarayanan of Cholamandalam Securities. “This explains the rise in stocks of firms that are expected to benefit from the reforms process,” he added.
According to Dhananjay Sinha, head of institutional research at Emkay Global, sectoral leadership may not emerge soon, as domestic and global factors are not conducive. “Drivers for the next growth cycle will be market leaders who already have strong market power and can deploy technological innovation to stay above the water and enhance productivity.”