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Home > Business > Special

2006: A flamboyant year for the markets

John C Gonsalves in Mumbai | December 30, 2006

The Indian capital markets continued the flamboyant journey in the fifth successive year and the bellwether Sensex entered into the elite 10k-club, rewriting history in many spheres during the year 2006.

It was the country's consistent economic growth and robust corporate earnings throughout the year that remained the principal triggers for the market's rapid travel to new heights, even setting aside some big hurdles.

The Bombay Stock Exchange bellwether index Sensex crossed five milestones but failed to conclude the year above the 14,000 level, which might open the door for another strong bull charge in the days to come.

The Sensex surpassed 10K mark in February and flew past 11K, 12K, 13K and 14K levels during the year while recording the fastest-ever 1,000 points jump from 11K to 12K in only 19 trading days.

In an eventful year for Indian bourses, the BSE barometer notched up 4,388.98 points, the biggest-ever rise in absolute terms, or 46.70 per cent, the second-biggest in percentage terms in the history.

It breached 14K level on December 5 but closed at 13,786.91 on the last trading session on December 29 compared to a close of 9,397.93 on December 30, 2005. The broader S&P CNX Nifty of the National Stock Exchange crossed the crucial 4,000 mark in the calendar year before ending at 3,966.40 on December 22, a whopping rise of 1,129.85 points or 39.83 per cent from last year.

The country's GDP growth remained attractive during the year, maintaining the average growth rate at 9.1 per cent in April-September period, higher than the government projections.

Riding piggyback on India Inc's growth story, Foreign Institutional Investors made huge portfolio investments into the country even as domestic mutual funds joined the bandwagon despite a caution sounded by some leading foreign investment gurus and analysts.

FIIs pumped in an enormous $8.34 billion, while mutual funds chipped in about Rs 13,300 crore (Rs 133 billion) in the calendar year.

Besides GDP growth and increase in corporate earnings, the sustained upward spiral could be attributed to a sharp fall in global crude oil prices to around $60 a barrel after hitting an all-time of $78.40 in mid-July.

Power and cement sector shares outperformed all other sectors following encouraging proposals for capital goods sector in the Union Budget presented in February. Real estate and infrastructure shares too were in the limelight.

However, it was not a smooth ride for markets in the calendar year as a global gloom during May-June had a cascading impact on Indian bourses.

The trouble started on May 18, when the Sensex tumbled by 826.38 points, the biggest single session fall, leading to a huge plunge of 3,872.10 points or 30.56 per cent from an all-time high of 12,671.11 on May 11 to 8,799.01 on June 14.

The situation turned worse on May 22, the day the BSE and the NSE were forced to suspend trading for one hour after the key indices touched ten per cent lower circuit for the second time in the history.

During this period, factors such as negative global trend, high interest rates, geopolitical tension in the middle-east and slowdown in US economy played spoilsport.

The Reserve Bank of India's CRR hike in December also played havoc on the bourses, pulling it down to 12,801.65 on December 12 from all-time peak of 14,035.30 on December 6, a net fall of 1,233.65 points in just three days.

The markets witnessed high level of volatility on several times ending with huge gains or falls, raising fears of margin calls on two occasions, in May as well as in December.

The markets continued upward march after mid-June on the back of buoyant trend in emerging markets among other factors including growing interest among Indian companies to acquire overseas entities.

Market leader Reliance Industries remained the star performer in the calendar year, even after the split in the Reliance group of companies.

The 2006 has been one of the best years for the stock markets as indices registered across-the-board gains. The capital goods, IT, metal, bank and technology sectors scored impressive advances. And given by current sentiments and the bullish outlook, 2007 also looks set to be a great year for the capital markets. 


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