Market miracle in '09, hope floats for 2010

Market miracle in '09, hope floats for 2010
The Economic Times, January 1, 2010, Page 1

ET Bureau, MUMBAI

The year 2009 though agonising at the start, has had an ecstatic end.

The year was the second best for stocks in two decades, and both the years were delivered by Manmohan Singh. First in 1991, as the finance minister and now as the Prime Minister.

Gloom enveloped investors as the year began with the credit crisis threatening to cause long-term damage to the economy and the market. For, the year before saw an unprecedented outflow of foreign funds after the collapse of the once invincible investment banks such as Lehman Brothers and Bear Stearns.

The Manmohan Singh government and the Reserve Bank of India governor Duvvuri Subbarao slashed taxes and opened the floodgates of liquidity, boosting morale that brought back global investors. These actions saw the benchmark sensitive index of the Bombay Stock Exchange surge 81% during the year, just a shade below the 82% gain in 1991, the year when Manmohan Singh took charge at the finance ministry under Prime Minister PV Narasimha Rao. That year, Sensex ended at 1,908 and in 2009, at 17,464. The index had given negative returns for just five years in the past two decades, with it remaining flat in 1996.

One of the most agonising moments was in early January, when Ramalinga Raju, the former chairman of Satyam Computer Services, disclosed an accounting fraud, leading to the stock crashing more than 85% in a couple of sessions. It made the question of ‘corporate governance in India’ rear its head once again after a decade of painful image building.

Many pundits predicted the worst global recession since the Great Depression in 1930s was under way and the hopes of the hundred-crore population may remain just a dream for a long time to come. But, the collective will of the people in the General Elections overshadowed the scepticism.

They brought back Manmohan Singh as the prime minister for a second term, but without the crutches, the Left. He has promised to walk the economic reform path briskly.

It was a New Year with three cheers on May 18. For, the first time ever, Indian stock markets were shut for soaring unbelievably. Previous shut downs were only to avoid crashes. The Sensex soared 17% that Monday.

Global investors followed. The tally this year is more than $17 billion of investments, more than what they took home a year before. Armed with cheap funds, thanks to the near-zero interest rates in the US, these investors started purchasing beaten-down shares of emerging markets, including India.

The profiles of foreign investors that drove the rally in 2009 were different compared to the previous bull run. Unlike the bull phase of 2005-07, where hedge funds dominated foreign institutional inflows into Indian equities, global exchange-traded funds are behind the 2009 rally, reflecting belief in the macro economy.

The rally has brought life to many companies such as real estate developer Unitech and wind-turbine maker Suzlon Energy, which were on the brink of default. Debt-laden companies sold shares to institutional investors and bailed themselves out. There was a turnaround in investor perception about some companies too. Tata Motors, which bought Jaguar Land Rover, was the best performing stock in the Sensex with a gain of 398%, after it was beaten down for amassing debt to buy those iconic brands. It was followed by Mahindra & Mahindra at 293% and metals company Sterlite Industries advancing 230%.

Of course, the year was not without its share of villains. The industry that revolutionised the way people operate — telecom — was a loser. Reliance Communications of Anil Ambani was the worst-performing Sensex stock losing 24%, followed by Bharti Airtel, which had backed away from combining with South Africa’s MTN Group citing legal issues, at 8%. The new year may not be as rewarding as the past one, but pundits believe it can’t be as bad as the past one threatened to be. Is anyone saying “this time it is different.”