Only Sri Lanka, Indonesia and Brazil better Sensex returns.

The Indian stock markets clocked their best-ever annual performance in 2009. The benchmark Bombay Stock Exchange Sensitive Index, or the BSE Sensex, logged an 81.03 per cent rise, the fourth best globally. Only Sri Lanka (125 per cent), Indonesia’s Jakarta Composite (87 per cent) and Brazil’s Bovespa (82 per cent) fared better. The Sensex just managed to pip the Shanghai Composite Index, which rose 80 per cent. For the Sensex, which rose 7,817 points to close at 17,465, the previous high in terms of returns was in 2003 (see graphic).

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On the last day of the year, the markets closed at their highest in nearly 20 months. The surge, which began in March, marked a turnaround from a record fall of 52 per cent in 2008.

The rise was driven by portfolio inflows, estimated at $17.46 billion during 2009, just $320 million short of the 2007 record of $17.78 billion.

“Recovery in the markets in 2009 was not surprising considering that benchmark indices had crashed over 80 per cent from their all-time highs. Unparalleled money supply has been the key driver,” said Ajay Pandey, assistant vice-president at Intime Spectrum Securities.

The sentiments of foreign institutional investors were buoyed after the election verdict in May. Even deficient rains did not deter investors searching for higher yields in a world where liquidity was not an issue.
 

Metals, auto lead gains
While the rally was all-round, metals and auto led the gains on the sectoral front. The metal index more than trebled. Auto stocks led the gainers in the main index, with shares in top vehicle maker Tata Motors rising five times over the year and reaching their highest since October 2007.

The BSE FMCG (fast moving consumer goods) Index turned out to be the worst performer, clocking a 40.46 per cent rise.

Rally to continue
Market players said the rally was expected to continue in 2010, underpinned by strong economic growth and an improving earnings outlook, but was unlikely to repeat the performance of 2009. The only worry was withdrawal of stimulus measures globally. But with India expected to outperform most markets, inflows are expected to continue.

“Today, India is the preferred destination for equity investors across the world. Dropping of VIX from 80 a year ago to 20 now is indicative of growing confidence in the markets and thus strong inflows can be expected to continue,” said ICICI Securities Managing Director & CEO Madhabi Puri Buch.

Angel Broking Chairman and Managing Director Dinesh Thakkar said: “In 2010, the markets will build on the gains put up in 2009. The acceleration in economic activity will hasten earnings growth for India Inc, supporting the up move. Further, strong inflows are unlikely to stop due to strong fundamentals and earnings by India Inc, supported by reasonable valuations.”

Thakkar said banking and infrastructure were the two sectors that would perform well. “For the next year, the theme will be commodity-linked, consumer demand-driven stocks. Also, shares of real estate companies will be worth watching given the kind of money supply that is expected,” said Pandey.

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