Thankfully, they were just spectres

Indian stock markets were ravaged by a steep correction in 2011 that pulled the benchmark Sensex 24 per cent lower. Both the Sensex and the Nifty were poised close to their long-term supports, threatening to jump off the brink into a deep dive when 2012 began.

A spate of scams and a government that was moving at the speed of a turtle on policy reforms had exasperated both foreign as well as domestic investors. Slowdown in the economy and corporate profits were the other bugbears.

But as another New Year dawns, investors have plenty to be glad about. Stocks have climbed a wall of worry and the benchmarks are now poised at their yearly highs. There were many factors that investors were worried about in the beginning of the year that proved to be overblown. We recount a few such scares.

European crisis

The spectre of a sovereign debt default by the beleaguered European nations — Greece, Italy, Portugal, Spain et al — has been scaring investors across the globe for more than two years now. This was perceived as one of the biggest risks facing our economy and markets towards the end of 2011. A credit crunch akin to 2008, following a sovereign debt default, could have throttled corporate growth and outflow of portfolio money could have caused another crash in stock markets.

But surprise! Greece is still surviving and so are the rest of the troubled European countries though they are sporting multiple band-aids stuck by the IMF, the European Central Bank and their wealthier peers.

True, stock markets turned wobbly every time Greece or Spain or Italy were due to pay back an instalment of their burgeoning debt. But the risk of a sovereign default towards the end of 2012 has reduced greatly, thanks to the fiscal reforms and structural changes that these countries were forced to implement by their reluctant saviours.

FII flows

Foreign institutional investors had tuned away from Indian equities in 2011 with net sales of $358 million in that year. This indifferent attitude was expected to extend into 2012 with stocks not likely to get support from the bounteous riches of the foreign institutional investors.

But these fears turned out to be unfounded right from the outset as a deluge of FII money entered stock markets in January and February, lifting stock prices higher. April to June recorded net outflows on an unfriendly Budget of 2012. But the flow picked up once again in the second half of the calendar. Their net purchase in stocks was $24 billion this year. They have net purchased $6 billion worth of debt.

Monsoon worries

Investors turned their gaze heavenward in June this year as the south-west monsoon played truant. Rainfall received was 23 per cent below average affecting pulses and oilseeds production. But the rain gods took pity and the precipitation towards the fag end of the season made up for the reduced rainfall in the beginning.

Government backtracks

The Centre appeared to be in a quagmire of its own making at the turn of 2012. Corruption at every level, indifference to pushing though critical fiscal and policy reforms and apathy to the goings-on in the stock market had made investors desperate. As if to add fuel to fire, Pranabda introduced the General Anti-Avoidance Regulation in the Budget that threatened to go after FIIs investing into India through offshore tax havens and to tax participatory notes.

But the government changed this belligerent stance in the second half of the calendarmuch to the relief of the investor fraternity.

With a Finance Minister who has his hand on the market’s pulse, they could not ask for more. He postponed the implementation of GAAR, pushed through some key reforms that himpressed both foreign and domestic investors.

Though the benefits of these policy changes will not impact the country immediately, it provided the much-needed fillip to investor sentiment.

COMMENT NOW