Samvat 2062’s 60% return will be tough to beat

Kishor Kadam & Vyas Mohan

MUMBAI: Investors have good reason to look back at Samvat 2062 - the traditional Gujarati business year which closed on Friday. 

During the year, which began on November 1,  2005, the Bombay Stock Exchange Sensex recorded its highest returns in absolute terms in a decade.

In percentage terms, the index has grown 60% stronger (from 7,944.10 points as on November 1, 2005 to 12,709.40 points on October 20, 2006), which is the second highest gain in the last 10 years.

The story is not limited to Sensex alone. Stocks outside the Sensex basket gained an average 58% in Samvat 2062.
The counterpart of the Sensex on the National Stock Exchange, the 50-share Nifty, has gained 54.2% from 2,386.75 to 3,681 during the same period.  Total investor wealth has grown by Rs 12.22 lakh crore, taking the market capitalisation of all actively-traded shares on the BSE up by 58.6% to Rs 33.08 lakh crore.

Reliance Industries (Rs 60,000 crore plus) and Infosys (Rs 45,000 crore plus) were the companies adding the largest chunk of investor wealth during the year, but Unitech was the company showing the largest percentage gain during the year (see table)

Will Samvat 2063, which will be kicked off with Muhurat trading on Saturday from 6.15 pm, be able to live up to last year’s pyrotechnics? Some brokerage houses are optimistic.

“India Inc has recorded an average profit growth of around 30% year-on-year and we have upgraded the Sensex earnings per share to Rs 686 for the financial year 2007 and Rs 780 for the 2008, with the possibility of further upward revisions,” says Manish Sonthalia, vice-president of equity strategy of Motilal Oswal.

The sectoral outlook, however, stands unchanged. “In the year ahead, shares of companies in consumption-driven sectors like FMCG, tourism and hotels, telecom and also infrastructure (both power and construction), will make smart gains,” says A Balasubramanian, chief investment officer of Birla Sun Life mutual fund. Turn to Page 20

Rajan Krishnan, asset management business head at Principal PNB, agrees. He also believes that consumption-driven sectors, infrastructure, housing and real estate are going to be hot performers in the year ahead.

Though the bull-run is expected to continue during the year ahead, it may not have the steam it had in the past. “On a relative basis, the growth will be at a moderate rate for the next year. But if India is rerated among global emerging markets, funds will start flowing in heavily and this would put the Sensex on a higher trajectory,” says Sonthalia.

That said, money making is not going to be as easy as Samvat 2062. “People will make money in Samvat 2063 if they do not get greedy and stay away from speculation. The run-up is not going to be as strong and fast as we have witnessed in the past. But sectors that are going to perform will perform. I am bullish on sectors like power equipment, tourism, infrastructure, steel and cement,” says Rahul Nangalia of Nangalia Stock Broking.

However, some feel that the markets have run up for too long, and it has to consolidate for a year somewhere. “No one knows when this will happen, but the Sensex will beat any other asset. A 9% growth in GDP added to a  4% inflation rate and a 2% risk premium comes to 15%. The Sensex would beat this rate of return in any case,” says an analyst with a domestic brokerage.

During Samvat 2062, as many as 1,127 stocks, accounting for 53% of the total actively traded stocks on the BSE, emerged as gainers. Among them, 14 saw five- to 37-fold rise in prices. Another 205 stocks appreciated in the 100-488% range, 245 companies grew 51-100% and 458 more companies clocked 11- 50% growth in share prices.

All sectors put up a strong show, but the BSE Capital Goods index emerged as the clear winner among sectoral indices, growing 85%. It was followed by the BSE Metals (up 60%), Oil & Gas (up 57%), TeCk (up 54%), Auto (up 54%) and IT indices (up 52%). All in all, six of the 11 sectoral indices of the BSE gave returns of more than 50% in the one year that went by.

Among individual stocks, construction major Unitech led the gains with a whopping 3,857% appreciation in share price from Rs 9.62 as on November 1, 2005 to Rs 380.65 on October 20, 2006. It was followed by Crazy Infotech shares that gave a 1,523% return (from Rs 5.60 to Rs 90.90), and Vas Animation & Entertainment (up 1,432% from Rs 3.11 to Rs 47.65).

However, in absolute terms of market capitalisation, Reliance Industries led the gainers’ list, followed by Infosys. TCS, Bharti Airtel and Bhel were the other big wealth creators.