Markets may have bottomed out at Sensex level of 7,700 and the stage is set for a 30 to 40 per cent recovery.

However, sustenance of this recovery will be dependent on stability in corporate profits and its subsequent revival, says a study conducted by Motilal Oswal Financial Services.

Among the fastest wealth creators of 2008 is the beleaguered real estate company Unitech with a 5-year stock price compounded annual growth rate (CAGR) of a whopping 284 per cent.

Infosys Technologies, Hero Honda and Ranbaxy Laboratories are among the most consistent wealth creators of the year.

Some of the dominant themes of 2008 were real estate, which the study terms as “fad investing”, and commodities. As a result, sectors such as oil and gas, led by companies such as RIL and ONGC, and metals and minerals, led by NMDC, SAIL and MMTC, dominate the wealth created with a combined share of 40 per cent. In 2003, this share was half this figure.

In contrast, IT, which enjoyed 43 per cent share in 2003, has a share of only 5 per cent in 2008.

The 2003-08 stock market boom is so widespread that total wealth destroyed is barely 0.2 per cent of the wealth created by the top 100 companies. Among the top wealth destroyers, HPCL and TVS Motor are the only two prominent names.

The study believes that there is a distinct possibility of earnings declining over the next two years, contrary to consensus estimates.

The Bombay Stock Exchange (BSE) benchmark index, Sensex, is currently trading at a year-ago price to earnings of 11 times, close to its historic lows of March 2003 (the beginning of a five-year rally).

Low market P/E clearly suggests that the market currently anticipates a sharp fall in corporate profits across the board.

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