Small, mid-cap indices beat Sensex by huge margin

Small, mid-cap indices beat Sensex by huge margin

The shares of small- and mid-cap companies outperformed the bluechips in financial year 2009-10. This was due to the revival of investor sentiment and expectations of higher returns.
For the year ended March 31, the 30-share benchmark Sensex gained 80.5 per cent, or 7,819.27 points. This was, however, dwarfed by the gains posted by indices representing the broader markets.
The BSE Midcap index, which comprises 248 stocks, gained 130.2 per cent, or 3,850 points, in 2009-10. The BSE Smallcap index, a basket of 482 stocks, surged 162 per cent, or 5,251 points.
Market participants, especially those dealing with a large number of retail clients, said small investors hoping to make swift returns actively looked at these counters. Shares of mid- and small-cap companies were beaten more when the market was down, leading to investors betting on them during the rally.
RECORD RETURNS

RECORD RETURNS
Index	‘07-’08	‘08-’09	‘09-’10
Sensex	19.68	-37.94	80.54
Nifty	23.89	-36.19	73.76
BSE 100	24.98	-39.97	88.17
BSE 200	24.13	-40.98	92.87
BSE 500	24.25	-42.77	96.38
BSE Midcap	19.38	-54.01	130.23
BSE Smallcap	21.19	-58.6	161.73
Source: BSE, NSE *Returns in per cent

Incidentally, this is the first time that the BSE Midcap index and the BSE Smallcap index have outpaced the 30-share Sensex by such a huge margin. It is also the first time that these indices have gained more than 100 per cent each in one financial year. In 2007-08, they had risen around 20 per cent. The benchmark Sensex had gained a little less than 20 per cent. For the Sensex, financial year 2010 was the best since 2003-04, when it had gained 83.4 per cent.
“Fresh buying was clearly visible in fundamentally strong stocks,” said Ajay Pandey, assistant vice-president (institutional sales), Intime Spectrum Securities. “It is not only mid-cap and small-cap indices that have outpaced the benchmarks. The Nifty junior was also higher than the Nifty,” he adds
Foreign institutional investors (FIIs) played a prime role in the gains posted by the indices in the year ended March 31. According to the Securities and Exchange Board of India, FIIs invested more than $20 billion (Rs 90,000 crore) in financial year 2009-10. Market participants, however, said the bulk of this money went into the index constituents

China in Midst of ‘Greatest Bubble in History

China is in the midst of "the greatest bubble in history," said James Rickards, former general counsel of hedge fund Long-Term Capital Management (LTCM) LP.

The Chinese central bank's balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

"As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," Rickards said at the Asset Allocation Summit Asia 2010 organised by Terrapinn Pte in Hong Kong yesterday. China "is a bubble waiting to burst."

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China's economy. The government has raised banks' reserve requirements twice this year after economic growth accelerated and property prices rallied.

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign exchange reserves to a world record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80% last year and property prices rose at the fastest pace in almost two years in February helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

Massive Stimulus

The World Bank indicated today that China should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations. The nation's "massive monetary stimulus" risks triggering large asset price increases, a housing bubble, and bad debts from the financing of local government projects, Washington-based World Bank said in a quarterly report on China released in Beijing.

"People making comments about bubbles possibly don't have all the facts," HSBC Holdings chief executive officer Michael Geoghegan said in Shanghai today. Regulators are in control of the banking industry, and have the ability to curb lending as needed, he said.

Rickards said leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance sheet debt through regional governments and the country's human rights record are concerns.

"Take Russia and China together, neither of them is really deserving any investment" except for short-term speculation, Rickards said. India and Brazil are two of the "real economies" among the developing countries, he said.

Hard Landing

China is poised to overtake Japan as the world's second-largest economy this year, according to International Monetary Fund, and Nomura Holdings forecasts it will contribute more than a third of global growth. The nation has surpassed the US as the world's largest auto market and Germany as the No. 1 exporter.

Harvard's Rogoff said February 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates, predicted a slump after excessive property investments.

Investors Bob Doll and Antoine van Agtmael say China's stock market isn't a bubble.

Equities will gain by the end of the year as the government takes measures to prevent the economy from overheating, Doll, BlackRock's chief investment officer for global equities, said on March 5. China is unlikely to face "chaos" or experience a hard landing, Van Agtmael, who helps manage $13 billion as chairman and chief investment officer of Emerging Markets Management, said in a Bloomberg Television interview yesterday.

Rickards worked for LTCM between 1994 and 1999, and helped to negotiate its rescue by 14 Wall Street firms after the fund lost $4 billion in a few weeks in 1998. The Federal Reserve brokered the bailout on concern that LTCM's collapse would cause a meltdown in financial markets.

Suger Stocks Turn Bitter

Sugar stocks have been one of the worst performers this week. Some stocks such as Bajaj Hindusthan and Balrampur Chini have dropped by over 10 per cent in the last three trading sessions. Since the beginning of the year, sugar stocks have underperformed the Sensex and the Nifty, dropping 20 per cent.

The fall in these stocks shouldn't come as a surprise. It was expected, particularly in the background of sugar prices rising to over Rs 40 a kg without any fundamental reasons. When sugar prices began to gain, stocks of companies in the sector too began to rise. But as the prices dropped, the stocks have followed suit. In the domestic market, prices have been on the downswing since the third week of January and since February 1, the market has seen about 30 per cent fall in the prices. The global market too witnessed a similar fall during the period.

On Thursday, white sugar in London was quoted at $547 a tonne against a peak of $767 seen at the beginning of the year. Raw sugar prices, too, have tumbled below 20 cents a pound. For traders, it would be a safe bet to keep off from these counters for now.

Here's why

The primary reason for sugar prices to surge was that the production this season (October 2009-September 2010) was expected to be 15-16 million tonnes (mt) against 15 mt last season. The Indian Sugar Mills Association on Tuesday said the production may be higher at 16.8 mt compared with the initial estimates.

Farms in western Uttar Pradesh still abound with sugarcane. That will mean production in the State, the country's highest producer, will be more by at least 1 mt. Also, farmers are reporting yields that are at least 23 tonnes higher per hectare. Besides, this season at least 7 mt of sugar was expected to be imported, while opening stocks are estimated at 3.7 mt. On the demand side, the domestic consumption is seen unchanged at 22 mt.

This means supply will easily outstrip the demand. However, it is unlikely to be that way as imports could now be lower. Already, the global trade is under pressure with many buyers trying to rework the deals in the face of declining prices.

Adding to the pressure on the market is Brazil's production doubling in February in the Centre-South, the largest growing region in the world.

No taste for sugar

A report by Kingsman said buyers are keeping away from buying sugar in the falling market. Besides this, large global funds have all begun to sell their holdings in sugar, making the scenario totally bearish.

On the revenue outgo side, mills are still having to pay a higher price for the cane. For instance, in Uttar Pradesh they are still paying Rs 261 a quintal for cane. In other States, the mills pay farmers anything over Rs 200 a quintal for the cane.

In Maharashtra, a tug-of-war has broken out between the mills and traders in view of the falling prices. The mills are not ready to sell sugar below Rs 3,200 a quintal. Besides the realisation from sugar, mills also get revenue from molasses and bagasse. But these incomes are seen as a cushion against the fall in sugar prices.

There are also reports that some smart operators who had stocked up on sugar when it was ruling at around Rs 15 a kg are now offering the commodity at less than Rs 30 a kg.

All this means sugar companies are likely to be under tremendous pressure. The current quarter could see a drop in the mills' profits.

What is perceived is that sugar companies could now be just profit-making units rather than ones making super-profits.

In these circumstances, it is most likely that sugar stocks will be totally in a bear grip Any recovery in the prices will be short-lived with global funds taking the opportunity to bail out. That will hold true for the stocks too.

Tata Motors see margine pressure

The Companies margin come under pressure as price of raw material such as steel, aluminum and copper increased.
Tata motors plan to offset this rise in the commodity by increase the prices and cost cutting.
Truck prices are expected to rise in April as the truck makers have to comply with new emission norms.

India a fast growing foreign investor

India has emerged as the second fastest growing investor in the United States after the UAE between 2004 and 2008.

The recent years have seen the drift toward a newer group of investors from countries such as the UAE, India, Spain and Chile, Under Secretary of State for Economic, Energy and Agricultural Affairs Robert D Hormats said in his address to the US Council for International Business.

While historically European nations have been the leading investors in the US, the fastest growing between 2004 and 2008 have been the UAE, which has shown a 230% average annual increase over four years, followed by India with 64% increase, Spain with 60%, Chile 50%, Switzerland with 38%), South Korea with 31%, China with 30% and Indonesia with 27%.


Among top investors, European countries hold 62% of the stock of FDI (foreign direct investment) in the US, with Germany, Switzerland, the United Kingdom, France, and Spain as the main investing countries.

The next largest group of investors is Japan, Canada, and Australia.