The last 15 years have been good for Sensex, FIIs and others, with uncertain future ahead

By Prasanna Deshpande and Kishor Kadam

In the past 15 years, the journey of the 30-share benchmark Sensex on BSE had been extremely eventful, rising by leaps and bounds on the back of robust foreign fund inflows as there was increasing number of takers for the India growth story.

A slew of factors, including progress on reforms at the government and regulatory levels, supported this growth. From the closing level of 3,262.33 in 2001 and 25,519.22 till 18 December this year, the Sensex has appreciated by a whopping 542 percent. The strong performance of the markets can be gauged from the fact that Sensex gave positive returns in 11 out of 15 years, underscoring the upbeat mood among investors and their faith in equity markets.

Among the top performing years in percentage terms, the Sensex witnessed its most stupendous performance in 2009, when the index vaulted by a whopping 81 percent even as the world was firmly under the grip of the global financial meltdown following the collapse of Lehman Brothers in September 2008. In 2003, the Sensex had appreciated by 73 percent followed by 47 percent returns in 2007, and a 46.7 percent rise in the year before.

As the global financial crisis unfolded, the year also witnessed the Sensex going into a tailspin along with other global counterparts, resulting in a mammoth 52 percent drop in the index as foreign investors pulled the plug. Even as the following two years saw risk appetite returning to equity markets, the Sensex once again witnessed foreign fund erosion in 2011, leading to around a fall of around 25 percent in markets.

The Sensex is once again headed towards a negative return in 2015 — its first in the last four years, as the bleak global economic picture and the sluggish domestic growth scenario, fuelled uncertainty amongst the investors leading to erosion in the index's value. Till December 18, at the closing level of 25,519.22, the Sensex had lost nearly 2,000 points, or over 7 percent in the ensuing year as the FIIs played hip-hop in a sluggish market.

Surprisingly, the Sensex had got off to a flying start in the current year, scaling a new all-time intra-day high of 30,024.74 on 4 March. In just three months of the current calendar year, the Sensex had ascended by over 2,500 points or nine percent as foreign investors bet on the new government at the Centre to speed up the reform process that had taken a backseat in the last few years of the previous government's tenure.

However, the slowing world economy, currency devaluation by China amid slowing demand, and the US Fed's impending rate hike decision, took a heavy toll on Indian markets, leading to a drop of more than 4,500 points or 15 percent in the next nine months from its all-time high level achieved early in March.

However, stock market participants and analysts are hopeful about the turnaround in equity markets in the year 2016, as the government is expected to take more proactive steps on the reforms front, which would once again put Indian markets back on the foreign investors' radar.

Citi expects the Sensex to touch 29,300 points in June, and 32,000 by next December. It estimates 20 percent and 19 percent earnings growth for fiscal years 2017 and 2018, respectively.

FIIs steal the show

The rise of Indian equity benchmark indices at a scorching pace in the past 15 years can be attributed to just one single dominant factor ie the overwhelming response of the foreign institutional investor fraternity, popularly known as FIIs in stock market parlance.

Riding on the back of an India growth story, these FIIs pumped billion of dollars into the domestic equity markets over the years, showcasing their strength to single-handedly drive the local market sentiment. In the past 15 years, overseas investors were net sellers in domestic equities in only two years, signifying their bullish stance here.

In one of the biggest fund infusions in the Indian stock markets, FIIs bought shares worth a total of Rs 1,33,266 crore in 2010, which resulted in the Sensex rising 17.4 percent in that year. They pumped in excess of Rs 1 lakh crore in 2012 and 2013 when the Sensex rose 26 percent and nice percent, respectively, driving home the point that Indian stock market performance is synonymous with FIIs.

In fact, the current year (2015) has seen FII net inflows slowing considerably to Rs 15,128 crore till 18 December, the lowest since 2002 when the inflows stood at Rs 3,630 crore. The sharp drop in foreign fund inflows was the result of FIIs pulling out money in September, October and in the December as well.

As China's policymakers began devaluing its currency yuan in June, the rupee, too felt the heat and depreciated sharply against the dollar thereafter, forcing FIIs to exit in hordes in August and September, where the aggregate outflows stood at nearly Rs 23,000 crore in just two months.

Further, the overhang of US Fed's interest rate hike decision in mid-December provided FIIs the reason to exit emerging economies, including India and park fund in safe haven such as the US dollar. As a result, selling once again resumed in November, leading to an outflow of Rs 7,629 crore and followed in the last month of 2015 as well where net outflows stood at Rs 3,015 crore till 17 December.

However, analysts believe FIIs will once again resume buying into local equities, as India still remains one of the best-performing economies in the world at a time when global growth remains anaemic and Chinese slowdown has hit commodity markets really hard.

Sectoral outperformers

While the focus has been on benchmark Sensex which scaled new highs in last 15 years, several non-benchmark and sectoral indices, too, caught investors fancy over the years, resulting in them outperforming the benchmark indices over the course of these years.

One such sector has been the BSE Capital Goods index, which zoomed by a whopping 1,815.2 percent in last 15 years as the focus to provide electricity across the country triggered massive off-take of power projects over the past decade and a half, and attracted significant investor interest in the sector.

The BSE Consumer Durable index followed it with an upsurge of 1,265.8 percent as the improving economic scenario and higher disposable incomes boosted discretionary spending. Further, the BSE Healthcare index surged 1,102 percent as rising USFDA approvals for selling drugs in high-value US & European markets, coupled with rising M&A deals in the domestic & overseas pharma space improved the valuations resulting in sharp appreciation in the stock performances of several leading domestic pharma companies.

In the coming year, analysts say the focus would be on consumption-based theme, hence the focus would be much more on FMCG, consumer durables, auto and other related sectors etc, as the fragile global economic growth and falling exports has forced the government to push the economy by improving consumer spending for which more cash will be put into the hands of people.

Sensex gems

Investors who stayed put in several blue-chip Sensex stocks over the last 15 years saw their returns gain multi-fold. Some of the stocks such as Lupin zoomed 82,566.7 percent to Rs 1,785.60 from level Rs 2.16 by end-2000.

Similarly, Kotak Mahindra Bank stock vaulted by 18,820.5 percent in the last 15 years from a low of Rs 3.71, Sun Pharma Industries flared up 5,772.6 percent, Axis Bank surged 4,677.1 percent and Asian Paints scaled up 4,677.1 percent during the period under review. Other companies such as Vedanta, IndusInd Bank, L&T, M&M, HDFC Bank, Tata Motors, HDFC, Bank of Baroda, BPCL and SBI gained over 1,000-4,000 percent, underscoring the improving fundamentals of these companies based on key metrics such as earnings, capex plans and expansion through inorganic routes etc.

Jewels in BSE 500 stocks

It was not just Sensex-based stocks that gave mamoth returns in last 15 years, several stocks in the BSE 500 index, too, hogged the limelight during the comparable years as improving economic growth prospects had a positive rub-off effect on these several mid and small-cap counters.

Some of the stocks like Symphony posted monster returns rising from Rs 1.01 to Rs 2,282.85 this year, an acceleration of 225,924.8 percent. Similarly, shares of City Union Bank zoomed 69,784.6 percent, Eicher Motors soared 58,721.5 percent and United Phosphorous surged 57,831.5 percent.

IPO market's roller-coaster ride

Fund raising by domestic companies through primary market was the most preferred route between 2000 and 2010, although it lost some momentum thereafter as several private companies deferred their fund-raising plans due to market uncertainty while government-owned companies chose the offer for sale (OFS) route to raise big bucks in last few years.

The best years for Indian IPO market in last 15 years came in 2007 when a total of 100 companies raised an aggregate Rs 34,179 crore through their respective public issues.

Similarly in value terms, the year 2010 was the best for the domestic IPO market as funds worth a whopping Rs 37,535 crore was raised by 64 companies. Even as the IPO segment faced rough weather thereafter, the current year has seen 18 companies raising a total of Rs 11,021 crore from the primary market, raising hopes of more companies likely to join the bandwagon in the wake of steady upswing in stock market performance and rising appetite amongst the investors for new companies, especially in the e-commerce space that has already attracted a lot of private equity money in last few years for their disruptive ideas.

(Check out Firstpost's collection on how the past 15 years transformed sports, entertainment, technology and more in F.Rewind.)

Updated Date: Jan 02, 2016 12:28:25 IST