RECENT SECTORAL PERFORMANCE AND FUTURE PROSPECTS

By

                                                           Dr. Tamal Datta Chaudhuri

                                                  Principal & Professor, Finance and Economics

The BSE Sensex is a measure of stock market sentiment in India. It is an index made up of 30 companies, chosen on the basis of their market capitalization. It is represented by various companies from various sectors. Thus movement in the Sensex over time and intraday merely reflects movement in prices of shares of the underlying companies that constitute the Sensex.

It is thus, perfectly possible, that the Sensex rises but the value of your portfolio does not improve at all or to that extent. This is because the Sensex is comprised of only a few companies, and even among them share prices of all may not rise on a given day. This brings us to the sectoral composition of the Sensex.

Figure 1

The sectors represented in the Sensex are banks like SBI & ICICI Bank, auto companies like Maruti Suzuki, Mahindra & Mahindra, Tata Motors, capital goods companies like BHEL, IT companies like TCS, Infosys etc. At a given period of time, not all sectors would perform equally. It depends on the macroeconomic conditions of India and also of the rest of the world. Domestic rate of growth and its pattern along with that of the rest of the world would determine which sector would grow and in turn would get reflected in the stock prices of companies from that sector.

Figure 1 shows contrasting performance of three sectors in India in the last one year, i.e. October 2012 to October 2013. Whereas the capital goods index (in brown) has continuously fallen, the IT index (in green) has increased significantly since May 2013. The auto sector has overall moved horizontally, at times picking up and at times falling.

It is interesting that sectoral performance reflects the inherent characteristics of the sector. Whereas the auto sector index reflects seasonal pattern of demand for this sector, the IT index is a reflection of the economic performance of the rest of the world. The capital goods index is a reflection of manufacturing sector slowdown of the Indian economy.