In the discussions about the present market conditions and
likely emerging scenarios in next few months with some seasoned investors and
money managers earlier this week, an cliché but still interesting point was
raised. A large majority of the participants felt that the equity markets have
diverged a long way from the real economy in past couple of years; and this is
matter of grave concern since this kind of divergences in the past have not
ended in a pleasant market scenario.
I however was on the side of small minority which felt that the
market movement in the past two years has actually been in total congruence
with the conditions in the real economy; and that is a cause of even more
serious concern.
In past couple of years while the overall economic growth has
slipped, a comparatively smaller section of the economy has done extremely
well. The number of billionaires in India has risen at a faster pace. The
number of Unicorns (start ups ventures valued more than a billion USD) have
risen rapidly. The sale of luxury vehicles has sustained while the sale of
entry level vehicles, two wheelers and commercial vehicles has collapsed. The
salary of CEOs has recorded rise of high two digits while the salary of lower
level workers has stagnated or even fallen. The wealth of top 1% has recorded
sharp jump while the bottom 70% have hardly grown. The air travel has recorded
much higher growth than railway and road transport passengers. The telecom ARPU
has recorded increase after many years.
Similarly, if we analyze the price performance of the companies
traded on the National Stock Exchange (NSE) during the two year period from 1
January 2018 to 31 December 2019, we get a very similar picture.
- ~50% of the companies have lost between 50.1% and 99.4% of their value in past two years. These companies include some really large names likes Reliance Infra (-95%), Reliance Power (-94%), Jain Irrigation (-94%), Jet Airways (-97%), DHFL (-97%), Reliance Communication (-98%), Yes Bank (-85%).
- ~36% of the companies have lost between 0.1% and 50% of their value in past two years.
- Only 9% companies have gained between 0.1% and 50% in value during past two years.
- Just 5% companies have gained over 50% in value during past two years, with just 1.5% gaining more than 100% in value.
While on one hand more than 75% of the population has suffered
some sort of stress in the past two year, 86% of the companies traded on stock
exchanges have given negative return.
No comments:
Post a Comment