In a departure from big gains in the past two years, investors saw around Rs 20 lakh crore of their wealth eroded as Indian equities tanked in 2011 because of inflation, high interest rates and the uncertain global growth environment accentuated by the euro zone debt crisis.
In addition, the rupee fell to historic lows against the US dollar, hitting the country's import bill.
The bellwether indices of the Bombay Stock Exchange as well as the National Stock Exchange fell by over 26 per cent during the course of the year, touching new lows.
The 30-scrip BSE Sensex was down by 5,334.01 points, or over 26 per cent, at 15.175.08 on December 20, against last year's close of 20,509.09. Similarly, the 50-share Nifty witnessed a hefty fall of 1,590.30 points, or 25.92 per cent, to 4,544.20 on December 20 from last year's close.
There has been some recovery since then, with the Sensex closing at 15,873.95 and the Nifty at 4,750.50 yesterday, but market experts say investors remain cautious on India.
Globally, the deepening European debt crisis and a historic downgrade of US creditworthiness hit the economic growth sentiment.
Besides, political turmoil in the Middle East pushed up global crude oil prices, adding to inflationary pressures and pushing up the country's import bill.
FIIs, the main drivers of the market, turned negative on Indian equities this year and after having injected a record Rs 1,33,266 crore, or over $29.36 billion, in 2010, pulled out Rs 2,497.50 crore, or $318.00 million, from equities till December 19.
Meanwhile, as per Sebi data, they pumped in Rs 39,637.50 crore, or over $8.2 billion, into the debt market till December 19.
Software services companies dropped on concerns over the slowdown in US and European markets, which contribute nearly 80% to their revenues. However, the steep fall in the rupee value brought some relief for them as their revenues and margins would increase in rupee terms. Telecom stocks came under pressure as the spectrum allocation scam took a toll on the sector, with several corporate head honchos, senior government officials and political leaders, including former Communications and IT Minister A Raja put behind bars. In the Union Budget 2011-12, Finance Minister Pranab Mukherjee cut a surcharge on corporate tax to 5% from 7% and projected a lower fiscal deficit target of 4.6%. However, fast-deteriorating external factors shattered the investor confidence.
These included the weak economic recovery in developed markets, high unemployment in the US and sovereign debt default fears in euro zone nations. Downgrading of debt ratings and the poor outlook of some European countries as per ratings by Fitch and Standard & Poor's (S&P) in May deepened investor concerns. An unprecedented downgrade of the US credit rating by S&P on August 5 led to turmoil in global markets, triggering fears of another recession in the world's biggest economy. Overall, as of December 20, since the end of last year, the BSE-Realty index was the top loser among all sectoral indices. It fell by 52.13%, followed by the Capital Goods (49.08%), Metal (47.29%), Power (41.91%), PSU (34.28%) and Bankex (32.92%). The BSE-100 dropped by 26.88%, the BSE-200 by 28.02% and the BSE-500 by 28.47%. The BSE-Smallcap and BSE-Midcap (second-line) indices also underperformed vis-a-vis the Sensex. During the same period, in the Sensex pack, BHEL slumped 50.80%, Jaiprakash Associates 49.34%, L&T 50.53%, SBI 43.69%, Tata Power 40.25%, DLF 36.53%, Hindalco 51.57%, ICICI Bank 43%, Jindal Steel 32.80%, Maruti Suzuki 35.64%, RIL 32.57% and Sterlite Industries by 52.76%. In addition, Tata Motors lost 33.05%, Tata Steel 49.30%, HDFC 14.39%, Infosys 22.57%, M&M 16.28%, ONGC 21.69%, Cipla 11.19%, HDFC Bank 11.76%, NTPC 22.81%, Wipro 19.29%, Coal India 3.99%, Hero MotoCorp 8.81%, TCS 2.74% and Bharti Airtel 9.92%. Meanwhile, HUL rose by 27.09%, ITC by 14.36 pc and Bajaj Auto by 4.08 pc. Looking ahead, analysts broadly say that at best, investors remain cautious about equities in India. They add, however, that falling inflation and interest rates, coupled with some policy initiatives, could see the country back in favour soon and some signs are there already.