While the biggies were biting dust...

IIPM set to beat economic slowdown

While the biggies were biting dust, fighting against all odds the ‘defensive stocks’ managed to create wealth for their shareholders, says Gyanendra Kashyap

Lord Byron, English poet and satirist remarked, “Adversity is the first path to truth”. True to his words, the adversities of the stock market in 2008 in a way challenged almost every myth present at the market place. And now, the investor fraternity in retrospect would rather prefer to forget the ‘heroics of the bear’ in 2008. It is true that with the collapse of the stock market, asset prices and commodities an unprecedented fear psychosis gripped the minds of the investors; yet despite all these adversities the truth is ‘2008 was actually not that bad as has been painted!’ Sherman Chan, Economist, Moody’s Economy.com, justifies, “India’s economic performance remained surprisingly solid in the first three quarters of 2008 due to robust domestic demand. GDP climbed 7.6% year on year in the September quarter; an enviable outcome compared with neighboring economies, many of which have entered recession or at least experienced a significant slowdown.”

If the stock market (Sensex) is considered as the only economic parameter which decides the fate of the economy (and foreign investment) then the performances of HUL, Godrej Consumer, Glaxosmithkline Pharmaceuticals, Zandu Pharmaceuticals and Hero Honda which have respectively delivered returns to the tune of 14.7%, 20.6%, 10.9% , 7% and 15.3% are worth considering. Don’t just go by the numbers if you consider that they are smaller, because numbers are often deceptive, understand the contextual essence. The stellar performances have come at a time when the stock markets were held hostage to possibly one of the worst crisis in recent times with foreign institutional investors pulling out more than Rs.530 billion and the benchmark Sensex crashing by a whopping 51.2%.

In a so called bear market when wary investors play defensive, the fast moving consumer goods (FMCG) stocks and pharma stocks have outperformed the benchmark index to emerge as the best performers. An analysis by Centre for Monitoring Indian Economy (CMIE) brings forth the point that in 2008 out of the 20 top performers 7 belonged to the FMCG sector. Despite the inherent weakness and competition in the market, their calculated strategy of pushing volumes and price increase seems to have paid off. In the present scenario HUL is amongst the few stocks that have managed to evade value erosion; as a matter of fact the market capitalisation of HUL on December 31, 2008 was pegged at Rs.276.45 billion as against Rs.239.17 billion on January 1, 2008. Though the absolute increase in market capitalisation may seem marginal (Rs.37.28 billion), considering the fact that behemoths like Reliance Industries, Wipro, Grasim Industries, DLF and Reliance Infra have eroded wealth to the tune of 53.2%, 54.6%, 67.6%, 73.6% and 74.53%; 15.56%; wealth apprehension definitely calls for a round of applause.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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