The Hindu Business Line : BSE-Power index star performer

Mumbai, Dec. 31 The top performers of 2007 amongst the thirteen odd BSE-indices were not just driven by corporate growth but also helped along by reforms in Government policy.

The BSE-Power index, which topped the indices list in growth, has given more than 122 per cent returns.

“The current demand-supply gap and the high correlation between GDP growth and the power sector growth had the Eleventh Plan giving major importance to power sector reforms,” said Mr Puneet Bambha, analyst Angel Broking Ltd.

The power sector offers potential of still higher returns because of deregulation. On the flipside, the risk involved post deregulation is that if costs are high then the burden cannot be passed on to the consumer, said analysts. “There were more capacity additions with captive power plants going up,” added Mr Bambha.

With power generation sector growing, equipment companies are also on the growth trajectory, according to analysts. These companies already have two-to-three-year order books.

This is reflected in the other high growth indices which were BSE-Metal (up more than 121 per cent during the year), BSE-CG (Capital Goods) (117 per cent), and BSE-Oil & Gas (115 per cent).

“The demand in the capital goods sector is derived from the power sector to a large extent. As a result, the capital goods sector is bound to do well. Also, there is importance given to not only power generation, but also to transmission and distribution, which adds to the demand for capital goods sector,” said Mr Sameer Ranade, analyst, PINC Research.

A demand for capital goods means a demand for metals as well.

Steel sector

“The demand in the steel sector was very buoyant, and in addition there was better control over raw materials like iron ore, coal and power” said Mr Rahhul Aggarwal, PINC Research analyst.

The Consumer Durables index, BSE-CD, gained around 94 per cent in 2007.

“The consumer durables industry is bound to do well because of high demand in this sector, and increasing purchasing power due to increasing incomes” said an analyst with a broking firm.

BSE-PSU and BSE-Realty reported gains of 73 and 71 per cent respectively.

BSE Bankex was up by 61 per cent.

“The banking sector faced a difficult macro-economic scenario with increasing liquidity and tightening of credit through rising interest rates and CRR hikes. However banks managed to deliver pretty good earnings growth per share growth and also went ahead with their capital raising plans”, said Mr Vaibhav Agarwal, analyst, Dolat Capital Markets Ltd.

The banks’ performance was also supplemented by growth in their other businesses”, added Mr Agarwal.

BSE-FMCG and BSE-HC trailed behind the BSE-Sensex which gave more than 47 per cent returns.

Defensive sectors such as FMCG and HC are slow growth sectors so investors shy away from them due to very low rate of returns in these stocks”, said Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

Laggards

The greatest laggards in the rally were BSE-TECk which gained less than 10 per cent, BSE-Auto which went up by over two per cent, and BSE-IT which dipped by around 14 per cent

“The high cost of finance due to high interest rates and a drop in sales, especially in the two-wheeler segment saw a sluggish trend in the auto industry”, said Harshal Patil, analyst, Dolat Capital Markets Ltd.

As for the IT sector, it is the rupee appreciation which has seriously hit IT stocks this year.

IT companies face rising manpower costs and the fear that the tax relief given to the IT sector may be taken away in a year or two are factors which might be keeping the IT stocks in the negative light.

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