BSE CG index soars 42% in three months, still far from ‘08 peak
Hopes of an end to policy paralysis, recovery in business confidence and uptick in economic activity in anticipation of a new central government in 2014 has attracted buying in high risk stocks of infrastructure and power in recent months.
Defensive bets and consistent market performers such as FMCG and healthcare stocks, on the other hand, have seen some loss of interest.
This can be seen from a 42 per cent surge in the BSE capital goods (CG) index in the past three months despite industrial production growth staying tepid throughout 2013. The BSE power index too gained 20.66 per cent in the same period.
These are the sectors whose stocks were hammered the most over the past few years due to regulatory uncertainty. Stocks from these sectors are still trading 50-65 per cent lower than their all-time high levels at around the 2008 peak levels. At Monday's close of 1733 points BSE power index needs to jump 180 per cent to touch its all-time closing high of 4863 points reached on January 7, 2008. BSE CG index, which closed at 10,601 points on Monday, is 96.85 per cent away from its all-time high of 20,870 points on November 14, 2007.
In contrast, from January 2008 till now, BSE healthcare and the BSE FMCG indices have soared between 120 per cent and 150 per cent per cent each.
“Investors are hopeful that the new government in 2014 general elections will give a thrust to the capital-extensive sectors. They believe a stable government with clear mandate would also look at problems these sectors are facing for long,” said Pankaj Pandey, head of research at ICICI Securities.
On Monday, while the market was cheering 1.50 per cent surge in benchmarks Sensex and Nifty, the BSE healthcare index was down 1.46 per cent. The BSE FMCG index, on the other hand, was up mere 0.21 per cent. In contrast the BSE CG index surged 3.14 per cent for the day; BSE power index was up 1.59 per cent.
Capital goods stock such as L&T, Crompton Greaves, Siemens and Sadbhav Engineering were up between 1.70 per cent and 4.50 per cent for the day. The 20-pack CG index has risen 16.13 per cent over the past three months.
NTPC, Power Grid, Siemens, GMR Infra and Reliance Infra rose between 1.70 per cent and 3 per cent to help BSE power index gain 1.59 per cent for the day. The 20-pack index has gained 7.41 per cent in the past one month.
“We expect market gains to be led by high-beta domestic cyclicals and expect defensives to underperform. However, we do not have conviction on industrial cyclicals, as high-frequency data still point to weak trends,” said Prabhat Awasti of Nomura India in a note.
Pandey, however, said defensive sectors still provide earnings visibility unlike infrastructure firms which are yet to show good numbers.
The FMCG has fallen 2.20 per cent in the past one month and 4.66 per cent in the past six months. On the other hand, the BSE healthcare index has fallen 1.46 per cent in the past one month but gained 7.14 per cent in the past six months.
“After the UPA II government being elected in May 2009, markets had celebrated with Nifty gains of 18 per cent in 2 days. While this momentum lasted for 18 months, subsequently Indian economy entered its worst period of two decades. This led to a downcycle in many domestic businesses which impacted both earnings and valuations,” said Motilal Oswal Financial Services in a strategy note.
It said domestic cyclicals –financials, industrial and cement sectors—have seen the worst impact while telecom firms were negatively impacted on policy font.
Hopes of an end to policy paralysis, recovery in business confidence and uptick in economic activity in anticipation of a new central government in 2014 has attracted buying in high risk stocks of infrastructure and power in recent months.
Defensive bets and consistent market performers such as FMCG and healthcare stocks, on the other hand, have seen some loss of interest.
This can be seen from a 42 per cent surge in the BSE capital goods (CG) index in the past three months despite industrial production growth staying tepid throughout 2013. The BSE power index too gained 20.66 per cent in the same period.
These are the sectors whose stocks were hammered the most over the past few years due to regulatory uncertainty. Stocks from these sectors are still trading 50-65 per cent lower than their all-time high levels at around the 2008 peak levels. At Monday's close of 1733 points BSE power index needs to jump 180 per cent to touch its all-time closing high of 4863 points reached on January 7, 2008. BSE CG index, which closed at 10,601 points on Monday, is 96.85 per cent away from its all-time high of 20,870 points on November 14, 2007.
In contrast, from January 2008 till now, BSE healthcare and the BSE FMCG indices have soared between 120 per cent and 150 per cent per cent each.
“Investors are hopeful that the new government in 2014 general elections will give a thrust to the capital-extensive sectors. They believe a stable government with clear mandate would also look at problems these sectors are facing for long,” said Pankaj Pandey, head of research at ICICI Securities.
On Monday, while the market was cheering 1.50 per cent surge in benchmarks Sensex and Nifty, the BSE healthcare index was down 1.46 per cent. The BSE FMCG index, on the other hand, was up mere 0.21 per cent. In contrast the BSE CG index surged 3.14 per cent for the day; BSE power index was up 1.59 per cent.
Capital goods stock such as L&T, Crompton Greaves, Siemens and Sadbhav Engineering were up between 1.70 per cent and 4.50 per cent for the day. The 20-pack CG index has risen 16.13 per cent over the past three months.
NTPC, Power Grid, Siemens, GMR Infra and Reliance Infra rose between 1.70 per cent and 3 per cent to help BSE power index gain 1.59 per cent for the day. The 20-pack index has gained 7.41 per cent in the past one month.
“We expect market gains to be led by high-beta domestic cyclicals and expect defensives to underperform. However, we do not have conviction on industrial cyclicals, as high-frequency data still point to weak trends,” said Prabhat Awasti of Nomura India in a note.
Pandey, however, said defensive sectors still provide earnings visibility unlike infrastructure firms which are yet to show good numbers.
The FMCG has fallen 2.20 per cent in the past one month and 4.66 per cent in the past six months. On the other hand, the BSE healthcare index has fallen 1.46 per cent in the past one month but gained 7.14 per cent in the past six months.
“After the UPA II government being elected in May 2009, markets had celebrated with Nifty gains of 18 per cent in 2 days. While this momentum lasted for 18 months, subsequently Indian economy entered its worst period of two decades. This led to a downcycle in many domestic businesses which impacted both earnings and valuations,” said Motilal Oswal Financial Services in a strategy note.
It said domestic cyclicals –financials, industrial and cement sectors—have seen the worst impact while telecom firms were negatively impacted on policy font.
