The spirited recovery after a crash

The spirited recovery after a crash

Virendra Verma

Mumbai , May 16

EXACTLY a year ago when Indian equity markets suffered heavy losses, no one had imagined its recovery would be so speedy.

Since May 2004, BSE Sensex and NSE's S&P CNX Nifty have not only touched their all-time high levels but also gained almost 45 per cent and the much broader indices such as CNX Mid-Cap Index has more than doubled during the same period.

Foreign broking firms that had downgraded India to sell on fears of a possible slowdown in economic reforms by the new government in power are now singing a different tune.

They expect the Sensex to go above 7,000 points.

The entire scenario has changed in the past twelve months. More foreign funds have opened shop in India. Private equity funds are looking for investment opportunities.

What had caused the sharp fall suddenly when everybody was bullish on India?

"The pre-election exit poll results predicting majority for NDA did more damage than the outcome of the election," said Mr Rashesh Shah, Managing Director and CEO of Edelweiss Capital, a broking and investment-banking firm.

So, in just 12 months what had changed? "Stock market players have a big heart," that's how Mr Motilal Oswal, Chairman of Motilal Oswal Securities, describes the last one year.

None of the people who were witness to the "Black Monday" would forget the day when crores of rupees were lost in just few hours. "It was like a nightmare for me and I thought everything was lost. After having shopped for booking at valuations, I found I had far exceeded my available resources," says Mr Arun Kejriwal of KRIS Research, an investment advisory firm.

"Losses were inevitable but there were some lessons to learn from the crisis. One of the biggest lessons for every new investor was that there would be sharp falls and gains in unexpected events. But falls could be more severe than gains. Market moves up through stairs and comes down by elevator," says Mr Oswal.

The other big lesson was the Indian stock exchanges' robust system that did not lead to financial crisis. "It gives a lot of confidence. Our systems are very robust as there were no payment crisis," says Mr Shah of Edelweiss Capital.

But the sharp fall provided excellent entry opportunity for long-term investors. If one had invested in mid-cap stocks, the returns would have been more than 100 per cent and if you were more lucky in identifying good stocks, the returns could have been even much better.

"It was good thing that market came down as we were able to pick good stocks at much low prices," says Mr Shah.