Bulls hit ‘Netagiri’ for a ‘Sixer’!

Rohit Joshi & Rakesh Khar/Zee Research Group

The mystery surrounding Sensex moves has got reinforced with the latest rally which saw the 30-share stock indices achieve a 19 percent growth this calendar. But what is clear from the latest spurt is that political stability or the lack of it has just got nothing to do with Sensex moves.

While the Sensex closed on Friday (September 14, 2012) at 18464, the 18 thousand mark was re-claimed soon after the rather disastrous monsoon session of Parliament. The monsoon session functioned for only six out of 19 days as it was being paralysed most of the time due to the conundrum between government and BJP. An analysis of Parliament reports reveals that the 15th Lok Sabha has lost almost precious 559 hours in its eleven sessions, so far, due to unending political acrimony.

The latest month-long Parliament monsoon session (8th August – 7th September 2012) has been one of the least productive sessions in the history of Parliament – only six of the 31 bills listed could be passed as logjam over coal scam paralysed the House.

But this did not deter markets from partying. Sensex has gained approximately 4.41 percent since the last day of the monsoon session and on Friday it closed at 18464, the highest closing level during 2012.

The Sensex euphoria in the backdrop of policy paralysis widely alleged by industry captains and civil society leaders alike has come about primarily due to the unstinted support of Foreign Institutional Investors (FIIs). During January-August 2012, there emerged net buyers of equity worth Rs. 63, 838.6 crore, whereas in the corresponding period last year, there were net sellers of equity worth Rs 889.1 crore.

FIIs’ love persists as they have so far purchased equity worth approximately Rs. 3027.8 crore as against being net seller of equity worth Rs. 1147 crore in September 2011. So far this calendar, FII data has provided support to the stock markets and it clearly shows that they are unaffected by the political situation at New Delhi.

The Sensex mood, hard to predict as ever, has surprised even the harshest critics of this government. The latest rally has also completely ignored the negative macro-economic situation as also the forecast for the 12-13 fiscal. Business leaders like Kumar Mangalam Birla, NR Narayana Murthy, Azim Premji, and Deepak Parekh have been continuously appraising the performance of UPA government negatively.

While Sensex has gained 19 percent so far this calendar, equity shares of companies of these tycoons have presented a mixed bag performance. Ultratech and Grasim, the cement companies owned by Kumar Mangalam Birla have given fantastic returns of 52 percent and 28 percent respectively in the corresponding period. Idea, Hindalco, Aditya Birla Nuvo have just given meager returns of 1 percent, 5 percent and 7.8 percent respectively in the corresponding period. Furthermore, HDFC Ltd., Infosys, Wipro has provided returns of 18 percent, - 6 percent, and -2 percent respectively during the period under review.

However, the benefit of liquidity driven rally has been mostly taken by the scrips of consumption and pharma space. So far this calendar, FMCG and Healthcare indices, have outperformed the Sensex and gained around 35 percent and 30 percent respectively. In FMCG space stocks like Godrej Consumer, Tata Global Beverages, United Spirits has given marvelous returns of 76 percent, 47 percent, and 88 percent respectively. In pharma space stocks like Wockhardt, Shashun Pharma, Strides Arcolab have given stupendous returns of 382 percent, 249 percent, and 127 percent respectively.

The most promising reason though behind this rally seems to be liquidity driven by the positive outcome of the global events. Recently, ECB President, Mario Draghi announced a slew of measures to buy bonds which is known as “Outright Monetary Transactions”. Furthermore, the US Fed’s decision on Thursday (13th September) to oblige the market with a QE3 and a fresh round of mortgage bond buying is likely to surge the liquidity across global markets.

Back home too there is a rare policy push ignited by grave crisis of character and faith for the UPA government. On Thursday (September 13, 2012), the government showed that it can bite the bullet, as it took the politically tough decisions to hike diesel prices by Rupees 5 per litre as also ration LPG outgo.

The policy momentum is expected to further push the grade. Friday decision to allow FDI in multi-brand retail, aviation (foreign carriers), broadcast services, offers Sensex the resolve to stay focused on the bull-run. The select PSU divestment plan too would add to the bulls’ menu. And for a change Prime Minister Dr Manmohan Singh can thank Sensex for granting him sound sleep! You never know when Sensex sounds the alarm bell?