The Indian stock market indices recently touched a new high, but there was no cheer or jubilation around. Our stock markets may be the best performer in Asia this year, but a majority of investors in it, have burnt their fingers and foreign investors have been selling and exiting from them, in large number. The markets may be up, but so are the losses incurred by the public. It is an over regulated, but dangerous market, which has returned sizeable losses to most investors.
India’s present stock market boom is not witnessing an all round increase in stock prices. The rally is led by an increase in prices of merely six companies viz. HUL, Infosys, TCS, HDFC, HDFC Bank and Reliance Industries, with over two thirds of the Sensex stocks being in the red. The return on investments by most of these stocks is even less than the interest you get on bank fixed deposits, which explains the huge losses incurred by investors and their decision to exit. The story of mid cap stocks is far worse and incriminating. There has been an utter blood bath in the case of the mid cap stocks. The prices of the best of scrips are down to their 52 week low and many others even to an all time low. Shares prices of BOI, UBI, Canara Bank are down by over 50%, HUDCO by 38% not to forget the scammy ones like Vakrangee and PC Jewelers, which are down by over 80%, which mirrors the losses suffered by unsuspecting investors in them. The only ones that have witnessed an increase this year, are the likes of TCS (47%), Reliance Industries (19%), HDFC Bank (16.5%) and HUL (23%). Almost all others have undergone a steep decline in prices, but yet even at such declined prices, the Indian stock markets are considered to be overpriced and expensive, thus foreboding a further decline in share prices.
The reason for such a stark and steep decline in the share prices is that the gains of India’s economic growth have not reached the broader market and thus the market prices rally is fueled by merely these six scrips. So if hope and expectation fueled a price rally in 2015 to 2017, it is now utter despair and nervousness that has brought the prices to their present lows. The fact is that corporates have been devoid of fundamentals of robust performance and are unable to sustain share prices on mere hope and expectation. Unfortunately, the investors now see safety and return in just these few scrips and have shunned the rest of them. Sadly decades of market led economy have failed to build a broad and deep base of Indian companies which meet investor expectations of governance and competence, with just a few companies that attract them and give them comfort. The list of big corporates enmeshed in bank frauds and scammy NPAs is proof of this failure of Indian corporate regulation and governance.
With the economy facing headwinds of oil price rise, increase in dollar values, global trade conflicts and election uncertainties, the markets will only stagnate and further erode valuation in the next 12 months. The Sensex may touch all time highs, but its been a cruel joke on the ordinary investors, let down by corporates and their poor management/governance.