And the equity market has, over the past three years, posed a similar problem for people who track its movements closely. If the movement in 2003 evoked sheer disbelief (for an investing population long used to a Sensex level of 3,000, a year-end close above 6,000 must have been eye-popping), it was more a sense of relief in 2004, as the market stayed above the 6,000-point mark, proving that the previous year's rise was no one-off phenomenon. And, in 2005, when the market, despite the rising crude prices, was still posting returns of about 35 per cent (for the Nifty and the Sensex), the performance compels us to use that adjective attached so frequently to Federer: Awesome.
As we look at the events that made 2005 a memorable year at the market, a few key facets stand out.
Foreign institutional investors (FIIs): Read that as money, with a capital M. It is a dalliance that began seriously in 2003 and refuses to break up. Net investments of $10 billion (Rs 45,000 crore; up by $2 billion Rs 9,000 crore over 2004) have only reaffirmed the interest that India commands among the FII community. Over the past two years, there has also been a significant rise in the number of FIIs registered with the market regulator. Fund flows into India were also aided by an appreciating rupee, which bolsters FII earnings.
In October 2005, the bears rejoiced when the Sensex shed about 1,000 points on the back of FII selling. Alas, that was to be short-lived. The FIIs came back with a bang in November, as if to prove they meant business. With the economy showing resilience and Corporate India likely to post strong growth in earnings, one can expect FII interest to be sustained.
Mutual funds: The mutual fund industry was not to be left behind, either. Propelled by the buoyancy in the market, mutual funds laid out the red carpet for the retail investor. And new fund offers were the flavour of the season, with a clutch of them launched in 2005.
At the end of the year, mutual funds had raised a staggering Rs 25,000 crore through such offers; adjusting for redemption especially in existing open-end funds mutual funds invested about Rs 22,000 crore. When such a significant sum enters the markets, there is only one way the indices can move northwards.
Crude oil prices: The fear of an unrestrained rise in crude oil price loomed large and threatened to derail the growth story. Indeed, with prices touching $70 a barrel, and the widespread impact such price escalation has across industries, the possibility of crude playing the spoil-sport was very real.
But India Inc was not deterred by the phenomenon. Makers of two- and four-wheelers continued to report brisk business, though the increase in petrol prices would indeed have pinched consumers; manufacturers of products with crude oil-based inputs resorted to price hikes, aided by a strong demand environment. ONGC was perhaps one company that had no complaints whatsoever about the rising prices.
Equity offers: The year 2005 turned out to be another good one for public issues, with about 70 offerings hitting the market (including seasoned offerings). Noticeably absent were PSUs, which raised a packet in 2004. Among the host of public issues, Gateway Distriparks was one that must have considerably swelled investors' coffers.
Other quality offers that gave investors reason to cheer included those of Shoppers' Stop, IDFC Shree Renuka Sugars and Suzlon Energy. HT Media was a high-profile offer that turned out to be a disappointment.
The equity-offers pipeline for 2006 looks robust, too. Conservative estimates peg the number of offers likely to hit the market at about 100. A few big names that have firmed up plans to enter the market are Bank of Baroda and Union Bank of India with their seasoned offers.
Dainik Jagran's offer should hit the market in the early part of 2006. Other big-ticket entities that may tap the market include Reliance Infocomm and Hutchison Essar, from the telecom segment; Air Deccan and Kingfisher Airlines, from the aviation space; and Mahindra Finance and Mahindra BT.
Mergers and acquisitions: If 2005 was a good year for investors, it was party time for members of the investment banking community, who took home fat bonuses.
And the M&A market turned out to be a two-way street, with foreign majors entering India and home-grown companies setting up shop abroad.
A few key deals include the acquisition of a significant stake in Reliance Capital by Mr Anil Ambani (through ADA Enterprises); the UB Group's takeover of the spirits business of its long-standing rival, Shaw Wallace (of the Jumbo Group); Swiss cement giant Holcim entering into an agreement with Gujarat Ambuja Cement; Matrix Laboratories' acquisition of Belgium-based Docpharma (making it the biggest cross-border pharma deal); the induction of Scottish & Newcastle as a strategic partner in United Breweries; and the investment by Vodafone in Bharti Tele-Ventures.
Such a trend should continue into 2006 as well. Sectors that are expected to be at the forefront of such activity include financial services (banking and insurance), pharma (both at home and in the developed markets of the US and Europe) and, perhaps, even IT.
And finally, penny stocks...: Ah, the lure of penny stocks. There's a certain quality about them that makes even a rational investor gravitate towards them in the expectation of bumper returns. Only to later suffer the mortification of seeing one's entire investment going down the tube.
Over the past three years, in no year has the craze for such stocks been as rampant as in 2005. It was not uncommon for stocks to quadruple in the space of a couple of months. And riding the wave were stocks with fancy names such as Gslot Enterntainment, IQMS Software, IOL Broadband and Landmarc Lesiure.
Investors who rode the wave just got plain lucky. But those who bought the stock at its peak and are now left with a lemon have only themselves to blame. As we sign off from 2005, we reiterate what we have always maintained: Buy them, but only if you've made up your mind to lose your shirt.
The former rose almost five-fold, even as the latter turned out to be spectacular multi-bagger, rising 10-fold over the past year.
If you thought that after having been on a tearing run in 2004, construction sector stocks would have paused to take a breather, you would have been quite mistaken.
Stocks from this sector continued to be red-hot and given the government's thrust on infrastructure, they could be in for good times in 2006 as well.
IVRCL, Hindustan Construction, Gammon India and Madhucon Projects posted stellar gains, with the last named trebling over the past year.
Stocks from the sugar sector proved to be a sweetener for investors. On the back of the expectation that prices would rule firm, sugar stocks were marked up sharply over the past year.
Also, with the news that a higher percentage of ethanol is to be blended with fuel in Brazil, the largest producer of sugar in the world, the demand-supply balance should remain tight and prices may sport an upward trend.
Considering that sugar companies have high operating leverage (an increase in topline leading to a more-than-commensurate increase in earnings), an improvement in the pricing environment will more than work to their benefit.
Stock prices of Balrampur Chini, Bajaj Hindusthan, Dhampur Sugars, Bannari Amman Sugars and Sakthi Sugars have more than doubled since December 2004.
Engineering stocks also had a dream run. With a swelling order book, companies that deal with power and related equipment such as ABB, Siemens, and Crompton Greaves, from the large-cap space, delivered handsome returns.
Stocks from the mid- and small-cap sectors, such as Kalpataru Power, RPG Transmission, KEC International and Emco, were also prominent gainers.
Other multi-baggers from this sector were Elecon Engineering, Patel Engineering, Greaves Cotton, Sanghvi Movers and Praj Industries.