60 days of Modi 2.0: Markets lose ₹12 lakh crore, likely to lose more

The markets have lost over ₹ 12 lakh crore in the last 60 days and those expecting a shift in the market momentum during the second term of the Modi government are likely to be even more disappointed.

Sensex is down by 1,800 points, at 38,100 level, while the BSE smallcap index has plunged to 13,167m making it a 12% drop in the same period.

But, its not all that easy to understand. At a glance, both the Nifty and Sensex are near their all-time highs. But, the index only tracks the top companies. A few of the companies holding the NIFTY close to the all-time high are companies such as HDFC, HDFC Bank, Infosys, ICICI, Reliance, SBI, the power grid, Kotak Bank and Adani ports.

But, companies such as Mahindra & Mahindra, Tata Motors, Tata Steel, JSW steel, Hero Moto corp, Reliance Capital, Vodafone Idea, Reliance Infra, Bajaj Electric, DHFL, Yes Bank, SUN TV, Maruti, Reliance Communications, TVC, ONGC are either at a 52-week low or an all-time low. “Investors who invested in relatively high-yield mutual funds are sitting on losses and those who invested only in the top companies are doing fine,” said a trader who did not want to be identified.

People who invest in smaller companies expect more gains than people who have invested in bigger companies. But, the smaller companies have fallen and the bigger companies have gained. The situation is likely to worsen over the next few weeks as well.

“The index is hardly 5-7% lower than the all-time high and people don’t expect to be in losses when the index is booming. But, they are. And if the index dips a little more, these stocks will go even lower. Hence, the worry in the market. In fact, the markets are likely to drop further,” observed another trader.

In India there are 3,000 listed and actively trading companies. Since, January 2018 the mid-cap index has been down by 20% and the small-cap index by 30%. The Sensex during this time has been up by 12%. The divergence between the top index, which is Sensex and Nifty, and the Broader Indices, under which the small and mid-cap companies fall, has been the highest in the year 2018. And the trend has continued this year too. In fact, the cut in the small-cap segment has been sharper since then, with the S&P BSE Smallcap index hitting its lowest level since February 2017 on Monday, July 22.

Small-cap companies include CEAT, Cochin Shipyard, DCB Bank, Cox & Kings and PVR and Mid-cap companies include Bata India, Berger Paints, Exide Industry, Federal Bank and IDBI Bank.

The situation is grim according to traders and market watchers. “The price to earnings valuation has gone up. There is a slow down in the domestic economy. There are several issues in the financial and auto sectors. No one, especially mutual funds, is willing to lend to small and mid-cap companies. In financial systems, if people don’t lend to you, then how will the company lend? Businesses have come under a scanner now,” explains another person, who works with an equity fund.

There has also not been much government spending either, despite having a strong majority at the Centre.

Moreover, there has been continuous selling by foreign investors post the Budget. FPIs have sold 7,712 crore worth of equities so far this month.

To put it in perspective, from May 14, 2004, to July 24, 2009, the first term of UPA-1 and the beginning of UPA-2, the BSE grew by 203%. But, for the corresponding period during the NDA rule, from May 23, 2014 to July 23, 2019, there has only been a 54% growth. It is similar with Nifty too.