How the markets fared in 2009?

2009 will go down in history as one of the best for Indian equity markets, after 1993 and 1999—this year, they have emerged among the top-four performing markets in the world.

It was the calm after the storm, and a much-needed one at that. After the carnage witnessed in 2008, 2009 saw the global equity markets calming down and the Indian markets made the most of this, becoming one of the top four performers in the world.

Foreign institutional investors played their part. They pumped in nearly USD 17 billion over the year. Of this, nearly USD 7 billion came from QIPs, USD 3.3 billion came from IPOs, and over USD 3 billion came from ADRs and GDRs.

Helping the India markets along were sectors like metals, automobiles, and technology.

Girish Paranjpe, ED and Joint CEO, Wipro, said, “We have demonstrated that we are a very resilient sector and we are able to manage demand fluctuations and manage margins very well. That should be a matter of great satisfaction for investors in this sector.”

The tech index rose 130%, and the auto index rose 200%, but both these performance were eclipsed by the metals index, which surged 230% over the year.

Jindal Steel & Power led the way, gaining nearly 380% followed by Sterlite, which rose 225%, SAIL which rose 205%, Hindalco, which rose 200%, and Tata Steel which gained 180%.

And 2010 should be a good year as well.

Naveen Jindal, Executive VC and MD, JSPL, said, “There is going to be huge demand for steel as per capita steel consumption is still quite low in India—its almost 14th of Chinese steel consumption. Steel prices are depressed as of now but I feel we are concentrating more on reducing our cost of production also but it is a temporary phase.”

The banking sector also bounced back smartly from 2008's drubbing. Most banking stocks gained around 100% each in 2009 but walking away with the honours are IndusInd Bank with a 270% rise, Central Bank, up 240%, and Yes Bank, with a 233% rise.

Yes Bank says this has been on the back of a strong business performance.

Rana Kapoor, Founder, MD and CEO, Yes Bank, said, “We have been deriving approximately 48-50% from non interest income sources which are fairly well diversified across treasury, across advisory, transactional banking and branch banking.”

However, not all sectors had a ball. Some heavyweights like HUL, Idea, and DLF posted just modest gains. The telecom sector took the worst beating, as tariff wars kept investors away.

Over the year, Reliance Communications fell 20%, and Bharti Airtel was down 10%.

Akhil Gupta, MD, Bharti Enterprises, said, “On telecom, surely the price wars have some pressure on the tariffs but what we mean is that they must be sustainable tariffs for everybody to grow in this business.”

CEOs are confident that 2010 will be a good year, after all, they have survived the upheavals in late-2008, and the uncertainty of 2009. But analysts are not so gung-ho. They say that while 2009 has given strong returns to the brave, 2010 may not see a sustained bull run, as markets consolidate.

Silver’s smart run to continue in 2010

Till now, market analysts have been going ga-ga over the rise and rise of gold prices but silver has been shining better than gold in 2009 and this trend is set to continue in 2010 also.

Driven by demand from auto sector for silver-zinc batteries which are used in ‘smart automobiles’ and an array of portable electronic devices, the silver’s shining story will continue in the coming year also.

Silver ready (.999 fineness) prices are hovering around Rs 27,850 per kg in the Mumbai bullion market.

Demand for silver in the coming year is expected to rebound to normal levels in 2010 as the emergence of key new markets for silver would help to boost prices further.

Also, re-stocking of inventories for more of silver’s traditional uses will be a powerful demand driver in the near-term.

Silver prices are mainly driven by the fact that traditional industrial end-users of silver, such as the global electronics industry have in recent weeks begun to replenish severely depleted inventories.

During the financial crisis, silver inventories had run down sharply and it may take approximately six-months to fully rebuild the inventories to normal levels, Singh said.

An important factor to understand in the case of silver is that demand from the industrial sector tends to be quite inelastic. This means that buyers have few options and have to pay at prevailing prices.

Finally, India loses top gold buyer status

Finally, it is almost certain that India will lose its numero uno status as world’s biggest gold consumer to China.

Since many years India has been ruling the world as the top consumer of the yellow metal but this year and increased surge in demand from China and a fall in gold jewellery sales in India due to high prices have caused India losing the top slot.

China’s rapidly growing economy and investment demand could see it add gold to the long list of commodities where it is the world’s largest buyer.

The story this year is mostly about falling demand in India — down by more than half in the first nine months of this year through September.

Gold’s record-breaking run, which has lifted prices 28 per cent this year in rupee terms, saw Indians cashing in on jewelry and gold bars, while the weakest monsoon in nearly 40 years hurt incomes in the rural sector that is the bedrock of consumer purchases.
In contrast, China’s demand was up 8 per cent in the same period. China could be buying gold as they are not sure what the value of their currency would be against the dollar. But gold is not intrinsic to them as it is to Indians.

Metals consulting firm GFMS projects that China’s gold demand will total 432 tonnes this year, and that India’s will total 422 tonnes.

A severe monsoon and record prices were behind the drop in Indian consumption this year, while loose liquidity in China has driven a buying spree across a range of resources.

India’s growth rate is catching up with that of China, and appears to be entering the early stages of the high-growth era that China saw from 1992 to 1993, giving consumers more purchasing power.

The extent of the fall in purchases could be building pent-up demand that might lead to a big correction.

Analysts in India said the drastic fall in demand must not be taken to mean India’s appetite for gold fell to the same extent.

A lot of consumers recycled old jewelry to buy new jewellery, the analysts said, while others sold gold bars to profit from high gold prices.

India’s total demand may have fallen by only 5 per cent to 10 per cent, when taking into account the recycled gold.

When Indians get used to new price levels, their traditional affection for gold might revive consumption, as there is a huge latent demand in India that could explode if prices make a significant correction.

In the long run, China might still overtake India. Economic and social indicators point to its greater affluence and spending capacity.

In the last decade, India’s gold imports remained capped under 800 tonnes despite a rising population and per capita income.

In rural markets, Indians are buying luxury goods such as automobiles and televisions, while the picture is different in rural China.

China is stepping up efforts to extend consumption in rural areas, including the newly wealthy people who are trying to own top brand gold for social status purposes.

Eight techniques to go by for ETF investments

Nearly a year after the worst financial crisis emerged, which caused exchange traded funds (ETFs), stocks and the overall financial markets to crumble, many investors are rethinking old strategies and are eager to get back to portfolio construction.

According to Jonathan Burton for MarketWatch, when it comes to portfolio construction, the following lessons shall be learned (a few of our own ideas have been thrown in for good measure, too):

-Diversification isn’t dead. Burton states that true diversification comes from allocating assets to different classes, like stocks and bonds, and not allocating assets between just stocks.

-Asset allocation works and a mix of stocks, bonds, cash and alternative investments affects total return more than the individual investments you choose.

-Market-timing doesn’t work, while periodic rebalancing reduces risks and helps one prepare for the unexpected.
-Save as much as you can and don’t overextend yourself.

-Buy and hold no longer works the way it should – we suggest watching the trend lines.
-Educate yourself about what your portfolio holds, what is going on in the world and how this can affect the returns on your portfolio. This is becoming increasingly important as the economy becomes a global one.

-Have a stop-loss. Don’t ride something to the bottom hoping that it will come back.
-Have patience. We all make mistakes. Use those errors as opportunities to do better next time