Indian Shares Soar in 2006 But Primary Market Dull by Arvind Padmanabhan SignUp
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Analysis Share This Page
Indian Shares Soar in 2006 But Primary Market Dull
by Arvind Padmanabhan Bookmark and Share

Mumbai, Dec 30 (IANS) Despite coming in the grips of bear operators for some two months and heavy volatility, Indian shares logged impressive gains in 2006, with a key market index soaring by a whopping 47 percent over the previous year.

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) ended the year at the level of 13,786.91 Dec 29, compared with 9,397.93 points at the end of the previous year, to register gains of 4,388.98 points or 46.70 percent. In the process, the barometer index also crossed several milestones and even managed to breach the 14,000-point level to touch a historic high of 14035.3 points during intra-day trading Dec 6 before sliding.

Only Chinese and the Indonesian stock markets performed better in the Asian region, with the Shanghai Composite Index rising almost 130 percent and JSX Composite of Indonesia gaining 55 percent.

"The most significant development for Indian share market in 2006 has been that investors have discovered value in real estate stocks. Real estate firms have done phenomenally well," said Amitabh Chakraborty of BRICS Securities, Mumbai.

The boom was also the result of some excellent performance of the Indian economy and, more specifically, good corp

Mumbai, Dec 30 (IANS) Despite coming in the grips of bear operators for some two months and heavy volatility, Indian shares logged impressive gains in 2006, with a key market index soaring by a whopping 47 percent over the previous year.

The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) ended the year at the level of 13,786.91 Dec 29, compared with 9,397.93 points at the end of the previous year, to register gains of 4,388.98 points or 46.70 percent. In the process, the barometer index also crossed several milestones and even managed to breach the 14,000-point level to touch a historic high of 14035.3 points during intra-day trading Dec 6 before sliding.

Only Chinese and the Indonesian stock markets performed better in the Asian region, with the Shanghai Composite Index rising almost 130 percent and JSX Composite of Indonesia gaining 55 percent.

"The most significant development for Indian share market in 2006 has been that investors have discovered value in real estate stocks. Real estate firms have done phenomenally well," said Amitabh Chakraborty of BRICS Securities, Mumbai.

The boom was also the result of some excellent performance of the Indian economy and, more specifically, good corporate results in all the quarters.

"The fact that the economy logged the highest growth of 9.1 percent in the first half of any fiscal since economic reforms began in 1991 makes us doubly happy," Finance Minister P. Chidambaram said, commenting on the share market boom.

The robust performance of share markets came despite a dip in net investments by foreign funds. Cumulative investments by foreign financial institutions in 2006 amounted to $7.99 billion, against 10.70 billion a year ago.

As on Dec 29 - the last day of trading for 2006 in Indian stock markets - the net investment by foreign funds since they were permitted to operate in the Indian stock markets stood at $49.09 billion.

This apart, the number of foreign funds operating in the Indian bourses also went up to 1,035, as per statistics available with the markets watchdog, the Securities and Exchange Board of India (SEBI).

"Foreign investors poured in close to $8.5 billion, helping to push the index to an all-time high and deliver US dollar returns of almost 42 percent," said the global merchant-banking firm Merrill Lynch in a year-end report.

The year did not pass without corrections, especially in May and June when the Sensex took the steepest fall since the stock market scam of the early 1990s. Yet the markets bounced back even if the upturn was marked by high volatility.

"In 2006, the regulators came down very strongly on the financial intermediaries involved in various primary issue scams. This has given out a very strong signal that the market is well regulated," Chakraborty said.

"Also, after the market crashed in May, it was able to bounce back very firmly showing the resilience of the market," he added.

During the year, some of the best performing stocks came from industries such as cement, banking, telecom and IT. Notably, the stocks Grasim Industries and the Associated Cement gained 100 percent, while that of Reliance was up 90 percent.

Looking at specific sectors, the index technology stocks was up 49.26 percent, followed by 40.11 percent for oil and gas, 39.44 percent for banking, 39.39 percent for metals and 29.65 percent for automobiles.

Yet, the robust performance of the primary market did not translate into any major upswing in the secondary market going by the money raised in 2006.

The year ended with companies mobilizing Rs.241 billion from the secondary market, just 6 percent more than Rs.227 billion raised in 2005, according to the New Delhi-based Prime - a think tank and database firm on Indian stocks.

"The mobilization would have been much larger but for the lack of public sector divestment. In 2004, Rs.168 billion was accounted for by divestment. This went down to nil in 2005 and 2006," said Prime's chief executive Prithvi Haldea.

Book building was also the preferred route to mobilize funds with 70 out of 92 issues that hit the market in 2006 opting for this route and collectively raising 97 percent of the mobilized funds.

"The year continued to witness a near-demise of small issues. There was no issue of below Rs.100 million, compared to two seen in 2005 and five in 2004. India is now in the big league," Haldea said.

Some big-ticket issues under book building included those of Cairn India worth Rs.52.6 billion, Reliance Petroleum (Rs.27 billion), Parsvnath Developers (Rs.10.89 billion, Lanco Infratech (Rs.10.67 billion) and GMR (Rs.7.8 billion).

Looking ahead, analysts expect the Indian share market to perform well in 2007, riding on a high economic growth. "The performance will depend on profits and that is unlikely to be negative," said economist Soumitra Choudhury of rating agency ICRA.

"We expect soft-landing from the US which means the US economic growth will slow down and funds will flow from their small and mid-caps to large cap market. This in turn will flow to emerging economies like India," Chakraborty said. "2007 would belong to mid-caps and stock selection will play a key role."

(Nayanima Basu also contributed to the report) 

orate results in all the quarters.

"The fact that the economy logged the highest growth of 9.1 percent in the first half of any fiscal since economic reforms began in 1991 makes us doubly happy," Finance Minister P. Chidambaram said, commenting on the share market boom.

The robust performance of share markets came despite a dip in net investments by foreign funds. Cumulative investments by foreign financial institutions in 2006 amounted to $7.99 billion, against 10.70 billion a year ago.

As on Dec 29 - the last day of trading for 2006 in Indian stock markets - the net investment by foreign funds since they were permitted to operate in the Indian stock markets stood at $49.09 billion.

This apart, the number of foreign funds operating in the Indian bourses also went up to 1,035, as per statistics available with the markets watchdog, the Securities and Exchange Board of India (SEBI).

"Foreign investors poured in close to $8.5 billion, helping to push the index to an all-time high and deliver US dollar returns of almost 42 percent," said the global merchant-banking firm Merrill Lynch in a year-end report.

The year did not pass without corrections, especially in May and June when the Sensex took the steepest fall since the stock market scam of the early 1990s. Yet the markets bounced back even if the upturn was marked by high volatility.

"In 2006, the regulators came down very strongly on the financial intermediaries involved in various primary issue scams. This has given out a very strong signal that the market is well regulated," Chakraborty said.

"Also, after the market crashed in May, it was able to bounce back very firmly showing the resilience of the market," he added.

During the year, some of the best performing stocks came from industries such as cement, banking, telecom and IT. Notably, the stocks Grasim Industries and the Associated Cement gained 100 percent, while that of Reliance was up 90 percent.

Looking at specific sectors, the index technology stocks was up 49.26 percent, followed by 40.11 percent for oil and gas, 39.44 percent for banking, 39.39 percent for metals and 29.65 percent for automobiles.

Yet, the robust performance of the primary market did not translate into any major upswing in the secondary market going by the money raised in 2006.

The year ended with companies mobilizing Rs.241 billion from the secondary market, just 6 percent more than Rs.227 billion raised in 2005, according to the New Delhi-based Prime - a think tank and database firm on Indian stocks.

"The mobilization would have been much larger but for the lack of public sector divestment. In 2004, Rs.168 billion was accounted for by divestment. This went down to nil in 2005 and 2006," said Prime's chief executive Prithvi Haldea.

Book building was also the preferred route to mobilize funds with 70 out of 92 issues that hit the market in 2006 opting for this route and collectively raising 97 percent of the mobilized funds.

"The year continued to witness a near-demise of small issues. There was no issue of below Rs.100 million, compared to two seen in 2005 and five in 2004. India is now in the big league," Haldea said.

Some big-ticket issues under book building included those of Cairn India worth Rs.52.6 billion, Reliance Petroleum (Rs.27 billion), Parsvnath Developers (Rs.10.89 billion, Lanco Infratech (Rs.10.67 billion) and GMR (Rs.7.8 billion).

Looking ahead, analysts expect the Indian share market to perform well in 2007, riding on a high economic growth. "The performance will depend on profits and that is unlikely to be negative," said economist Soumitra Choudhury of rating agency ICRA.

"We expect soft-landing from the US which means the US economic growth will slow down and funds will flow from their small and mid-caps to large cap market. This in turn will flow to emerging economies like India," Chakraborty said. "2007 would belong to mid-caps and stock selection will play a key role."

 

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30-Dec-2006
More by :  Arvind Padmanabhan
 
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