January 04, 2012

Market Trends in 2011


1. Market sways to jail house rock
The arrests of former Union Telecom Minister A Raja, DMK leader Kanimozhi, corporate executives and bureaucrats in the 2G spectrum scam unnerved the stock market. Ideally, the move should have brought cheer, as it underscored the rule of law in the country. However, investors were worried that too many skeletons tumbling out of the cupboard would do more harm than good to sentiment.  

2.Union Budget 2011-12 - High hopes Mr Mukherjee!
The market was enthused by Finance Minister Pranab Mukherjee’s commitment to restrict fiscal deficit to 4.6% of GDP in 2011-12. For that, Mukherjee would have had to take some tough decisions on subsidies. Thanks to a combination of adverse global events and some damaging populist measures like the Food Security Bill, there is no way the target can be achieved.
3. Assembly elections- the rise of Didi and Amma
Market cheered the defeat of Karunandhi-led DMK in Tamil Nadu, as it meant less bargaining power for the meddlesome ally in the UPA government. Also, the Mamata-led Trinamool’s victory in Kolkata and the wins in Kerala and Assam raised hopes that the UPA would be able to pursue reforms more aggressively. However, Mamata now seems to have taken over from Karunandhi in throwing tantrums.
4. Flight to safety: Gold keeps hitting new highs
With global equity markets faltering, investors worldwide shied away from risky assets and parked funds in the yellow metal, considered as a safe haven against devaluing currencies. This pushed the gold prices to an all-time high of Rs 29433, per 10 gm, turning out to be the best asset class for investors with an annual return of over 
40%.
5. RBI’s answer to inflation:
A continuous dose of rate hikes Inflation made headlines throughout the year, with soaring prices of food and essential commodities threatening a social unrest. To tackle the problem, RBI hiked rates by a total of 300 basis points, in phases. Unfortunately, the rate hikes did little to quell inflation.
6. Standard & Poor’s downgrades America’s sovereign debt
Credit rating agency, Standard & Poor’s for the first time downgraded US AAA credit rating by one notch to AA plus. According to S&P, American government’s fiscal consolidation plan wouldn’t suffice to stabilize the government’s medium-term debt. The move rattled markets across the world.
7. Eurozone crisis-Will Greece default or not?
Midway through the year, the focus shifted from US’s worsening public finances to the debt problems of Eurozone members. The trouble started with Greece and then spread to Italy, Ireland, Portugal, and Spain. Technically, Greece has averted defaulting on its bonds, but the ‘Euro Debt Crisis’  as the region’s problem has come to be know as, is far from over.
8. The Mining Bill and the mining scams
The Mining Bill triggered a sell-off in metal and mining stocks, as these companies would now 
have to share a portion of the profits with the local population. But this was not as bad as the 
mining scams that came to light in Karnataka and later on, in Goa. The Karnataka mining scam 
resulted in Supreme Court restrictions, which impacted raw material supplies besides tarnishing the reputations of a few leading companies.
9. Rupee hits a record low to the dollar
The Indian rupee touched a life time low of 54.2 to the dollar. A key driver was the strengthening of the dollar against most currencies, as panicky investors switched from the Euro to the dollar. But the RBI aggravated the slide in the rupee when it publicly said that it would not defend the currency.
10. IIP falls as high interest rates bite:
Rising interest rates may not have been able to tame inflation, but they certainly affected investments into capital intensive sectors. And that showed in the steadily dropping index of industrial production. The figure for October was by far the worst, declining to a negative 5.1%--the first decline in more than two years
Wealth Creators                         %Gain
Amtek India                                   169
Alfa Laval                                       82
UTV Software                                77
Gujarat Fluorochemicals              74
VST Industries                               73

Wealth Destroyers                   %Loss
GTL                                                 91
KGN Industries                              90
Kiri Indus.                                       89
Jai Balaji Inds.                               88
ICSA (India)                                  
*BSE 500 stocks / *Prices as on Dec-23
11. Pledged shares sell-off sends stocks crashing
Promoters of many mid-sized companies, who had raised money by pledging a big chunk of their shares found themselves in trouble because of the market downturn. As share prices weakened, the lenders with whom the shares were pledged, asked promoters to deposit additional collateral. Failure to do so in many cases prompted lenders to sell the shares, sending the stock prices crashing
12. Policy paralysis-government on the back-foot
The government tried to break free of the policy deadlock, by pushing through Foreign Direct Investment in retail. The market cheered the move, viewing it as a precursor or many more such reforms. But the celebrations were short-lived, as the government had to backtrack on its retail policy in the face of stiff resistance from the opposition parties.
US Market
Nasdaq                      -3%
S&P 500           -1%
Dow                              5%
European Market
CAC                  -20%
DAX                  -16%
FTSE                    -8
Asian Market
Sensex             -23%
Shanghai          -23%
Taiwan             -21%
Hang Seng       -21%
Nifty                   -23%
Nikkei               -19%
Straits Times    -17%
Kospi                -10

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