Paradigm Shift Poser

The problem lies in the fact that the economy is going through a fundamental change, and the markets are yet to fully capture that change. It is the service economy which is growing by leaps and bounds, while the domestic manufacturing sector has undoubtedly been hit by competition.

And yet, large parts of this fastest-growing sector of the economy are not captured by the stock market. Consider, for example, the boom in telecommunications---how many of the companies making a rapid expansion in this sector are listed? There is no way in which the market captures the boom in the cellular phone industry. Next, not one of the leading Indian dotcoms is listed locally. Call centres and e-CRM centres form another fast-growing sector, again with no listed companies.

 

Housing too is growing rapidly, but since the demand as well as supply is mainly retail, this sector too is not fully covered by the market, except through the housing finance companies. Many of the software services companies operating at the cutting edge of technology are also not listed in the domestic markets.

TV channels form another fast-growing sector, and how many TV companies are listed? That also goes for content providers, another sector growing explosively. It's clear, therefore, that like the rest of the economy, the Indian stockmarkets too are in transition.

Things are changing, however, slowly but surely - the success of the Mukta Arts issue, the Hughes Tele.com IPO - the first private sector telecom offering in the country, and the impending IPO of Pritish Nandy Communications - these are the vanguard of the future of the Indian stockmarkets.

Technology index

India Index Services & Products (IISL) recently launched the CNX Millennium Index, an index that represents high-growth technology sectors. With this, India finally has a recognised technology index that is comparable (well, at least akin) to the likes of the Nasdaq Composite. Though the move may seem a little late in the day, an index that epitomizes the technology sector still sets certain things right.

Firstly, despite the recent meltdown of technology stocks, many of them still enjoy the maximum attention of both investors and speculators. To illustrate, the traded volume of only the top ten technology stocks accounted for over 80 per cent of the total traded volume at the country's top exchanges. The point is, the Millennium Index acts as a better barometer for many market players.

Besides, most Indian growth funds are tech heavy and there are also a number of funds dedicated to the tech sector. Presently, all these funds are benchmarked against diversified indices and a tech index will be a good alternative.

Also, with NSE looking at introducing derivative products based on the index, these funds will have access to a better hedging tool.

The historical performance of the Millennium Index vis-a-vis the Nifty would give a picture on how it serves as a better barometer, benchmark and hedging tool. While the returns of the Nifty in the past year stood at a negative 1.52 per cent, the Millennium Index's returns were over 90 per cent. Further, while the Nifty fell around 35 per cent in the past six months, the Millennium Index lost close to 50 per cent of its value.

Yet, despite the liquidity enjoyed by many of these stocks, IISL has still included relatively illiquid stocks such as VisualSoft Technologies. This despite an index consisting only of 25 stocks. It seems that criteria, other than the usual liquidity and market cap, have been used to filter out the stocks.

(With contribution from Mobis Philipose)