StatsGuru: 04-November-2013

Making sense of last week's BSE Sensex rally

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The BSE has gone through the roof, setting new records for the Sensex in the past week. Is it outperforming its peers? And what lies underneath its strong performance? As Table 1 shows, the BSE is largely recovering the ground it lost since 2008 - like London's FTSE, it had a fairly regular, U-shaped dip in value since then. Other stock markets have had different patterns since 2008. New York's Dow Jones has had most of its gains since 2008 this year; Istanbul's BIST 100 has actually lost value recently, in spite of big gains since 2008. So has Jakarta's exchange. Notably, Jakarta's index is the only one in this list to have lost value since the US Fed announced its eventual taper in June.

Meanwhile, as Table 2 shows, that the Sensex has hit an all-time high does not mean that small- and mid-cap companies have not lost tremendous amounts of value since January 2008. And, even within the Sensex, there has been a tremendous amount of churning to bring the indices' overall value back to what it was then. FMCG, IT, healthcare and automotive stocks have done very well; realty, power, capital goods and metals have done very poorly. In some cases, like that of Sun Pharma and TCS, the gains have been in excess of 300 per cent since January 2008. The gains and losses finally cancelled each other out last week.

As Table 3 shows, this is reflected in the change in market capitalisation of the large companies in each sector. Altogether, FMCG market capitalisation has increased by over 200 per cent in five-plus years since the previous high; realty lost 90 per cent of its value. Finally, it is worth noticing in Table 4 that the P-E ratios of the Sensex isn't the same now; it is lower than it was at its last high. At that time, the high was driven, clearly, by unrealistic P-Es for sectors like power and realty. Today, FMCG has a P-E of over 30, but that's it.