A roller-coaster 2001

Krishnan Thiagarajan

THE year 2001 will go down as one of the most tumultuous one in the Indian stock market history.

If 2000 marked the fall of the 'convergence triad' (or technology-media/entertainment-telecom stocks) and the beginning of the bearish phase in the markets, in 2001 stock market scams, terrorist attacks and the UTI crisis reshaped the Indian bourses. Obviously, the September 11 attacks on the US left markets worldwide in a daze and the Indian markets were no exception. With the plunging indices world-wide, the BSE Sensex touched an eight-year low on September 21. There was swift recovery in October and November, but the market has shown no firm signs of shrugging off the post-September 11 blues

Right from the start of 2001, adverse events/developments took the market on a roller-coaster ride. Some of the key events that dictated the course of the stock market during the year were:

The Finance Minister announced a dream Budget for 2001-02 and the market gained 177 points on Budget day. But in the next couple of days, the dream turned into a nightmare. The selling pressure in the New Economy stocks (or the convergence triad) took the veil off a scam in which Ketan Parekh and a set of brokerage firms were involved.

Close on the heels of the market crisis in March 2001, on July 2, the US-64, the flagship scheme of the Unit Trust of India, announced that it was suspending the sale and purchase of units. In less than two weeks of this, the UTI Board of Trustees announced a bailout package for investors. But the UTI's troubles and the impact on the market are far from over.

Event-specific gainers

In a year when the Sensex declined by over 20 per cent, the limelight was more on the prominent losers rather than the gainers. Notably, the list of top 100 gainers was populated with stocks driven mainly by company-specific developments or correction of under-valuation or open offers proposed towards the end of the year. For instance, Bajaj Auto, one of the significant gainers during the year. It was a gainer largely because of the steep under-valuation of the stock and to a lesser extent by improved growth in motorcycle sales. United Breweries, another gainer, made the list because its stock price was driven by rumours of equity stake acquisition by a foreign brewery major and its own acquisitions in the latter half of the year. Similarly, Infotech Enterprises, an IT enabled services major, was one of the major gainers thanks to a good order book position and the acquisition towards the year end of 18.4 per cent of its equity stake by Pratt & Whitney, a division of the US-based United Technologies Corporation. Otherwise, most other gainers, such as IBP, GKN DriveShaft and Bosch Rexroth were either open-offer or disinvestment candidates.

Losing momentum

The momentum stocks (or the so-called Ketan Parekh favourites or K-10) figured prominently among the losers in 2001. Among the momentum favourites that lost over 85 per cent of their share price were Himachal Futuristic, DSQ Software, SSI, Global TeleSystems and Shonkh Technologies. Others which lost 60-80 per cent included Zee Telefilms, Pentamedia Graphics and Silverline. Outside of the K-10 bracket, some of the stocks from the convergence triad which took a beating by over 60-85 per cent were NIIT, Shyam Telecom, DSQ Biotech, Sterlite Optical, Usha Martin, IT & T, Optel Communications and GV Films.

The losers among the Old Economy stocks, shedding over 60 per cent of the stock price, were Mukand, Usha Ispat, BPL, Elbee Services, Amara Raja, Nirma, Gillette, Bombay Oxygen, Escorts, Kopran, Novartis and Birla 3M.

Sectoral trends

Clearly, the investing theme for 2001 was a circumspect return to Old Economy stocks. After biting the dust with the New Economy scrips, there was a distinct 'flight towards quality' and `selectivity' was the key in picking up stocks. Among the sectors which figured prominently among the gainers/losers in the year were:

Automobiles, a mixed bag: The performance of the different segments of the automobile industry was a mixed bag. Heavy commercial vehicle (HCV) majors, represented by Ashok Leyland and Tata Engineering, figured among the major gainers on account of an improvement in vehicle sales during the second half of the year. However, the performance of the tractor, multi-utility and LCV segment continued to be poor. This contributed to Escorts, Punjab Tractors and M&M figuring among losers in terms of stock returns. Pharma, domestic sizzle: Pharma companies were among the more consistent performers during the year. Aided by the growth in export of generic products, leveraging on drugs going off-patent and stepping up its efforts to penetrate the US markets, the Indian pharma companies such as Dr. Reddy's, Cipla, Ranbaxy Labs, Wockhardt and Sun Pharma ended in the positive territory ranging from good to modest gains. On the contrary, the MNC pharma companies lagged their Indian counterparts through the year, with notable losers being Glaxo India, Knoll Pharma, Abbott Labs, Novartis, Rhone Poulenc and Pfizer.

Software, shunned: The sharply lowered revenue guidance provided by frontline companies, starting with the likes of Infosys and followed up by HCL Technologies, Satyam Computers and Hughes Software in the first two quarters of 2001-02 confirmed the worst fears of the industry. And as offshore outsourcing remained sluggish, the valuations of the entire industry were marked down to near 52-week lows of almost all companies. In relative terms, the frontline stocks lost less value vis-a-vis the second-rung stocks. Commodities/economically-sensitive sectors: The performance of the commodity and economically-sensitive sectors continues to be depressing, except for a few bright areas. The cement sector is one of the latter. The consolidation in the cement sector, the improvement in operational efficiencies and the relatively firm prices in northern and western markets generated significant trading interest in Gujarat Ambuja Cements, ACC and L & T. But India Cements and Madras Cements turned in negative returns. However, the significantly high returns in some key cement stocks such as Gujarat Ambuja was also attributable to too many investors chasing stocks with good fundamentals and pedigree.

With the exception of cement, almost all the sectors such as aluminium, steel, paper among commodities have been in the doldrums.