The Hindu Business Line : Investors had much to cheer in 2005<br>It's a Sensex story all the way; large-caps made a big come-back

WHAT a year it was! Just when investors had established a level of comfort with the Sensex at the 6,500-point level, the index once again proved its ability to pull off a surprise by closing out 2005 well past the 9,000-mark. Indeed, 2005 may well go down as a year that confounded investors, analysts and journalists alike. And anyone who had hazarded a guess early in the year that the Sensex would end 2005 within striking distance of 10,000 would probably have been promptly told off to have his head examined.

The split in the Ambani family of Reliance was one of the key events of corporate India in 2005. But, it did not appear to have affected sentiment towards the Reliance Industries stock. Posting a gain of close to 70 per cent over the year, the stock played a pivotal role in powering the Sensex ahead. While Mr Mukesh Ambani got control of flagship Reliance Industries, his brother, Mr Anil Ambani, who got Reliance Infocomm and Reliance Capital, went about the process of setting up his business empire by acquiring strategic stakes in several companies.

The year will also go down as one of large-caps. Unlike in 2004, when mid-caps occupied centrestage, large-caps came back with a bang in 2005. This has also been aided to no small extent by the graduation of several stocks to the large-cap bracket (market cap above Rs 4,000 crore). The number of large-cap stocks has more than doubled in the bull market since April 2003 and is now close to 100. This has played no mean role in attracting higher foreign institutional interest. To put the performance of such stocks in context, returns of the Sensex in 2005 have outpaced those of the BSE 100, BSE 200 and the S&P CNX 500 by five to seven-percentage points.

Gains in the Sensex have not been entirely at the expense of mid and small-cap stocks, either. The newly constituted BSE Midcap and BSE Smallcap indices, which came into effect in April, have posted returns of 42 per cent and 51 per cent since. This clearly suggests that there is still steam left in the mid/small-cap theme. FIIs continued to pour money into Indian equities, investing in excess of $10 billion in 2005; over the past three years, they have invested about $26 billion.

And they have also shown a greater preference for stocks belonging to the mid-cap space, the universe of which has expanded significantly on account of several initial public offerings and the graduation of several small-cap stocks.

A substantial rise in the number of FIIs registered with the market regulator and investments spread across 750 companies reaffirmed that India is indeed a hot destination for such investors.

On the flip side, the performance on the PSU and healthcare index turned out to be a disappointment. While the reluctance to raise fuel prices to mirror escalating costs of crude and the issue surrounding the lowering of government holdings in public sector banks dragged the PSU index down, intensifying competition in developed markets and events in the domestic market such as the transition to MRP-based excise duty and the implementation of VAT led to the healthcare index turning in an anaemic performance.

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