The bellwether BSE Sensex shed 24.64 per cent in 2011 in the wake of high inflation , higher interest rates, depreciating local currency, slowing domestic growth and global uncertainties witnessed during the last 12 months.
This is the first annual fall in the Sensex in the last three years. However, punters are keeping their hopes on falling food inflation, possible reversal in policy rate hikes and initiation of economic reforms post-state elections. A survey conducted recently by Mail Today has found many punters betting on the BSE Sensex peaking in the 18,000-20,000 points range in the coming 12 months.
The Sensex had reflected the general negative sentiment, when it closed 0.57 per cent or 89 points down at 15454.92 points on the last day of 2011 on Friday. For the full year, the Sensex shed 5,054 points from its 2010 close of 20,509.09 points. However, in dollar terms the fall of the Sensex is even steeper at 36.74 per cent. A depreciating rupee, usually, erodes the take-home value of foreign institutional investors' (FII) investments. The Dollex-30 index of the BSE, which captures the dollar value of Sensex, slid from 3,761.83 points at the end of 2010 to 2,379.90 points on Friday.
The fall in the Dollex-30 could be attributed to a steep fall of about 16 per cent in the rupee against the dollar in 2011. The rupee, which touched Rs 43.85 per dollar on July 27, closed at Rs 53.01 on Friday, down two per cent from Thursday. Seven out of 13 sectoral indices on the BSE have done worse than the BSE Sensex in 2011, while only the fast-moving consumer goods (FMCG) index bucked the trend and ended the year with positive returns of over nine per cent.
Inflows from foreign institutional investors (FIIs), which drove the market up in 2010, were missing in action in 2011, thus dampening the spirits. They invested about $380 million (Rs 1,600 crore) in 2011, compared to $29 billion or over Rs 1.3 lakh crore in the previous year.
"The ultimate market direction depends on inflation, which can allow the rate reversal and in turn bring the economy back on the growth trajectory," said Kishor Ostwal, chairman and managing director (CMD), CNI Research. Though food inflation has slid below two per cent for the year ended mid-December, the Reserve Bank of India (RBI), which hiked interest rates 13 since March 2010 , may not reverse rates soon.
Domestic economic data is likely to play a key role in 2012. Dipen Shah, head of fundamental research of Kotak Securities, said, "Even the toned down GDP growth target from 8.5 per cent to 7.5 per cent looks difficult to achieve. Fiscal deficit is likely to be around 5.5 per cent against the target of 4.7 per cent." The depreciating rupee is also likely to hike the net outgo towards servicing and repayment of principal of foreign debt by the Centre in the future, adding to the deficit. However, it is expected to increase the attractiveness of Indian goods and services abroad.
Punters feel that the current low valuations of stocks were attractive for investors to build a successful portfolio. Many stocks are trading at 10-12 times their price to earnings (P/E) multiple, taking them to 52-week lows.