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Indian equity market is going through a turbulent patch since August 11, when China decided to let its currency depreciate with market forces. The Sensex is down 6.7 per cent since then and almost all sector indices of the BSE have recorded losses. The lone survivor in this phase is the BSE Healthcare index; up 1.1 per cent.
Two deciding factorsIf we look at the performance of the sector indices, two themes have dictated performances in this period — the Chinese economy and rupee movement.
The move by the People’s Bank of China to set the yuan reference rate lower on August 11 revived fears about the slowdown in the country. Further, weak manufacturing data from China, released last Friday, exacerbated these concerns. Crude oil plunged and other commodities followed suit. It is, therefore, not surprising that the BSE metals index is the worst performer in this period, down 14 per cent. BSE Oil and Gas index has also done poorly, losing 11 per cent.
If the China factor was responsible for pulling down many stocks, the rupee gave a leg-up to others. The currency has fallen almost 3.7 per cent against the dollar from 63.7 on August 10 to 66 now. Since a depreciating rupee is positive for exporters, companies deriving a significant portion of their revenue from overseas operations saw their stock prices gain. Most healthcare companies, therefore, weathered the selling onslaught over the past few sessions. BSE IT index was the other index that managed to stay afloat with loss of just 0.9 per cent.
The best and the worstHealthcare stocks such as Glenmark Pharma, Jubilant Life Sciences, Lupin and Sun Pharma dominate the list of out-performers over the last fortnight. These stocks appear to have been chosen by investors for their superior topline growth and the expected boost to export revenue from a weaker rupee. The strong growth prospects in the US markets also aided these companies. Investors appear to have flocked to both large as well as mid- and small-cap pharma stocks in this period.
The other theme in the outperformers list is auto components. Companies such as Amara Raja Batteries and Ceat that derive a portion of their revenue from exports stand to gain from rupee depreciation. The revival in the domestic demand for autos also helped.
Metal majors such as Vedanta (-29 per cent), Hindalco (-25 per cent) and Nalco (-24 per cent) are prominent losers, largely due to the slump in commodity prices.
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