With $42 bn from FIs, Indian equities soared 30 percent (IANS Special: 2014 in Retrospect)

Mumbai, Dec 31 (IANS) Indian equity markets emerged as one of the the strongest performers amongst emerging economies this past year with a key index soaring almost 30 percent against 9 percent in the previous year – the gains mainly accruing due to a stable national government under Prime Minister Narendra Modi and a perception that reforms were back on track.

The year also saw a record inflow of net investment by foreign funds pegged at $16.11 billion in equities. The data with the National Securities Depository Limited (NSDL), showed that the overall inflows in equities and debt market stood at $42.35 billion.
The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which stood at 21,170.68 points as on Dec 31 last year, was up 6,328.74 points, or 29.89 percent, as trading for the year ended Wednesday at 27,499.42 points.
The barometer index touched a high of 28,822.37 points on Nov 28 and a low of 19,963.12 on Feb 4.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) which closed 2013 at 6,304 points, ended 2014 with gains of 1,978.7 points or 31.38 percent at 8,282.70 points.
It touched a high of 8,626.95 points and low of 5,933.30 during the year.
“The defining moment was the clear mandate in favour of one political party in the elections. The government provided the optimism on strong reforms measures in the times to come. This boosted the the markets,” Dipen Shah, head of private client group research, Kotak Securities, told IANS.
According to list complied by Zyfin Adviors’ among individual stocks that comprise the 30-share Sensex, Axis Bank gained the most, by 93.9 percent; followed by Maruti Suzuki, up 89 percent; State Bank of India (SBI) at 77 percent and ICICI Bank, up 61 percent.
At the other end of the spectrum, only four scrips performed in the red. Tata Power was the worst performer, down 7 percent, followed by Tata Steel, down 6 percent, Reliance Industries and Wipro ended flat.
Call it a positive concoction of bullish sentiments, the Indian markets really sparkled in 2014 thanks to the perceived reform-oriented approach of the new government, with some tough decisions like hikes in rail fares and deregulation of diesel prices, falling crude prices and reining in of inflation.
The scrips of domestically-oriented companies were the first to pick up on the back of policy reforms. The scrips of most export-oriented sectors companies also benefited from the strength of the US economy. But companies dependant on Europe or China suffered.
The markets saw a broader rally across the midcap, with sectors such as consumer durables (69 percent), auto (56 percent) and pharma (49 percent) gaining . But infrastructure and capital goods sectors under-performed.
“Sectors like pharma, consumer goods and auto have seen positive sentiments. We can see the first beneficiary of the feel good factor was from consumer demand whereas new capex is yet to improve,” Vinod Nair, head of fundamental research at Geojit BNP Paribas, told IANS.
Till now, defence, railways and medical sectors have seen key reforms, while realty, manufacturing and allied sub-sectors have come in for regulatory easing.
Reforms, coupled with the reining in of inflation, and high expectations of a cut in interest rates in the near term led foreign investors investing nearly $42 billion into India’s equity and debt markets this calendar year.
These funds had pumped in $19.9 billion in 2013. They have been net buyers of Rs.1,000 billion in equity since January, with the preferred sectors being IT, pharma, auto and consumer goods.
“The way the market has performed it is quite evident that FII’s investments have come predominantly into interest rate sensitive sectors like banking and infrastructure,” Lalit Thakkar, managing director for institutions at Angel Broking, told IANS.
Going ahead, geo-political issues, crude prices and company results may be the biggest triggers till the apex bank takes some action at its next policy meet.
On the other hand, the US Federal Reserve’s curtailling of its QE programme, while the ECB, China and Japan supporting theirs has left the world with higher liquidity and India in a comfortable, but not cushy place.
“India will stand to be a beneficiary of such quantitative easing by big global economies as liquidity will continue to be directed towards Indian equities,” Thakkar added.
“India could see a higher share of global portfolio flows being allocated to it due to its strong prospects structurally, especially with Mr. Narendra Modi as the leader.”
Others state that India’s fundamentals are improving faster than most other emerging markets – and this should help attract flows into India.
(Rohit Vaid can be contacted at [email protected])