In­dia’s mar­ket cap down $274 bn in one year

Business Standard - - THE SMART INVESTOR - SUN­DAR SETHURAMAN

In­dia’s mar­ket capitalisation is down by $274 bil­lion, or 12 per cent, in dol­lar terms in the past one year. In com­par­i­son, the Sen­sex is down four per cent in dol­lar terms and has risen six per cent in lo­cal cur­rency terms.

The weak­ness in the ru­pee and broader mar­kets has led to evap­o­ra­tion in the mar­ket cap. The ru­pee has de­pre­ci­ated by 10 per cent against the US dol­lar since Fe­bru­ary 2018. The broader mar­ket-based MidCap and Small­Cap in­dices of the BSE are down 14 per cent and 24 per cent, re­spec­tively, dur­ing the same pe­riod.

The one-year Sen­sex re­turns are pos­i­tive, thanks to gains in heavy­weights such as Reliance In­dus­tries (up 44 per cent in one year), In­fosys (up 43 per cent) and Tata Con­sul­tancy Ser­vices (up 25 per cent). On the other hand, Sen­sex com­pa­nies, in­clud­ing Tata Mo­tors and YES Bank, have seen their mar­ket value drop by 60 per cent. Re­turns for 13 Sen­sex stocks are pos­i­tive, while 18 are in the neg­a­tive ter­ri­tory. The score­card is worse for the BSE 500 in­dex, where only one of four stocks have given pos­i­tive re­turns since Fe­bru­ary last year.

“The bench­mark in­dices are slightly higher but the broader mar­ket in­dices are down mas­sively. We have wit­nessed a huge di­ver­sion in the large- cap and mid- cap per­for­mance,” said An­drew Hol­land, CEO, Aven­dus Cap­i­tal Pub­lic Mar­kets Al­ter­nate Strate­gies.

The in­tro­duc­tion of longterm cap­i­tal gains, goods and ser­vices tax (GST) and the IL&FS de­fault have weighed on the per­for­mance of smal­land mid- cap com­pa­nies, say ex­perts.

On the global front, the ris­ing US dol­lar and bond yields have led to riskaver­sion among over­seas in­vestors. Be­sides, ris­ing ten­sions be­tween the US and China, two of the world’s largest economies, have weighed on the mind of in­vestors. Over­seas in­vestors have pulled out close to $4.5 bil­lion from do­mes­tic stocks in the last one year.

Fur­ther, some reg­u­la­tory changes, in­clud­ing the re­clas­si­fi­ca­tion of mu­tual funds, norms for lend­ing against shares be­ing made stricter, and ad­di­tional sur­veil­lance mea­sures adopted by ex­changes, added to the woes of mid- and small­cap stocks.

“Tight­en­ing liq­uid­ity con­di­tions in the last one year com­pounded woes for smaller com­pa­nies. Post the IL&FS cri­sis, those avail­ing credit from NBFCs are find­ing it dif­fi­cult to raise funds. That has af­fected the work­ing cap­i­tal cy­cle of quite a few com­pa­nies. Un­for­tu­nately, all the neg­a­tives have co­in­cided in a short-pe­riod lead­ing to a rout in this space,” said Deepak Jasani, head of re­tail re­search, HDFC Se­cu­ri­ties.

In­dia’s share in the global mar­ket cap has de­clined from 2.8 per cent a year ago to 2.65 per cent at present.

Sid­dhartha Ras­togi, man­ag­ing di­rec­tor, Am­bit As­set Man­age­ment, said that in 2017 mid- and small- cap stocks had run way ahead of their val­u­a­tions and hence cor­rec­tion was in­evitable.

Ex­perts said the sit­u­a­tion could sta­bilise once the elec­tion-re­lated volatil­ity sub­sides. “In the sec­ond half of this year, you will see a re­ver­sion to the mean; there will be broad-based re­cov­ery. FPIs (for­eign port­fo­lio in­vestors) could come back af­ter the po­lit­i­cal sit­u­a­tion gets crys­tallised in June. The quar­terly num­bers, which came for De­cem­ber, were rea­son­ably good, and I ex­pect the num­bers to be good for the quar­ter end­ing in March,” Ras­togi said.

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