MUMBAI: The BSE Sensex slumped by more than half in 2008, its worst annual performance ever, and the outlook for the new year was muddled by uncertainties with corporate earnings set to slow sharply.
Besides falling domestic economic growth and a recession in countries from the United States to eurozone and Japan, investors in India will have to factor in heightened political risk with national elections due by May.
Analysts say conditions could become favourable for the market to rise in the second half due to an expected recovery in the global financial system and revival in foreign fund inflows to emerging markets such as India.
"The world needs to stabilise first before the Indian market stabilises, and that will take some more time," said Samir Arora, fund manager at Helios Capital Management in Singapore.
The 30-share BSE index plummeted 52.4 percent in 2008, its first annual decline since 2001 and sharply more than the previous worst fall of 20.8 percent in 1995, according to Thomson Reuters data.
In comparison, South Korea fell 40.7 percent in 2008, Hong Kong shed 48.3 percent, Japan dropped 42.1 percent and China slumped 65.2 percent, joining a global equities market rout.
Foreign fund withdrawals of more than $13 billion weighed down Indian shares in 2008 after record inflows of $17.4 billion in 2007 when the BSE index had risen 47 percent.
"You will not make humungous amount of money in 2009, but you will make some reasonable returns," Arora said. "Not much excitement is expected in the market in the first quarter or so."
GAINS LIKELY IN LATE 2009
Analysts said a revival in the foreign portfolio investments was unlikely until the global credit situation improved.
"My view is they will continue to be in a wait and watch mode for some more time," said Amit Khurana, head of institutional equities at Colin Stewart in Mumbai.
A Reuters poll conducted earlier this month forecast the index at 11,000 by the end of 2009, up 14 percent from 2008, after rising 11.4 percent to 10,750 points by mid-2009.
The benchmark, which ended down 0.71 percent on Wednesday at 9,647.31 points, lost about 25 percent between October and December, its biggest quarterly slide since the three months to June 1992 when it shed 28.1 percent.
However, it has recovered more than a quarter since hitting a three-year low of 7,697.39 on Oct. 27, but is down 54.5 percent from a record high of 21,206.77 on Jan. 10.
"We still believe that there is a fair chance we will test the previous lows before we bounce back," Khurana said. "The concern is whether we get into a deflationary situation globally. If that gathers pace, then it will be a serious situation for the markets."
The bear market is likely to continue in 2009 due to risk of lower earnings, while the coming general election was important as a fragmented verdict could hamper policymaking and impact growth, Morgan Stanley said in a report this month.
"Any recovery in the market is likely to be long, drawn-out affair. It is unlikely that we'll get a V-shape recovery out of this bear market," it said. "Of course, it comes as no surprise that it follows the best bull market in Indian history."
The main index, which had been rising from 2002, soared six times between 2003 and 2007 to end last year at 20,286.99.
WORST PERFORMERS
Shares in infrastructure and automobile companies were the worst hit in 2008, as high interest rates crimped demand. Seventeen stocks in the BSE index lost more than half their value during the year.
Construction firm Jaiprakash Associates was the biggest loser in the benchmark index, falling 80.5 percent to 83 rupees, while top vehicle maker Tata Motors plunged 77.9 percent to 159.05 rupees.
Consumer good maker Hindustan Unilever Ltd, a unit of Anglo-Dutch conglomerate Unilever Plc, was the only gainer in the key gauge -- rising about 17 percent to 250.25 rupees as a defensive play amid a flight from risky assets.
Analysts said market sentiment in the short-term could get a boost if the government unveiled another economic stimulus package and the central bank reduced interest rates further to revive Asia's third-largest economy.
The 10-year benchmark bond yield fell to 5.18 percent, its lowest since May 2004, in early trade on Wednesday on expectations of a rate cut, before bouncing to 5.26 percent by 1108 GMT after a television channel quoted finance ministry officials as saying rate reductions may not be steep.
At the low, the yield had fallen 189 basis points in December and traders said bond prices had already factored in a one percentage point cut in the central bank's key short-term rates.
Indian policy makers have slashed rates and cut duties to shore up growth that has been slowing faster than expected. Economists in a Reuters poll expected the economy to grow 6.8 percent in 2008/09, its slowest in six years, and 6.2 percent the following year.
In the broader market on Wednesday, 1,505 gainers were ahead of 944 losers on average volume of 345 million shares.
The 50-share NSE index ended down 0.68 percent at 2,959.15, losing 51.8 percent in 2008.
STOCKS THAT MOVED ON WEDNESDAY
* Energy group Reliance Industries fell 1.5 percent to 1,230.25 rupees after Standard & Poor's revised its rating outlook on the company to negative from stable, citing its increased debt and pressure on profitability.
* Satyam Computer Services rose about 6 percent to 170.15 rupees on hopes the embattled Indian outsourcer will announce a hefty share buyback and a management change at its board meeting on Jan. 10.
MAIN TOP 3 BY VOLUME
* Reliance Natural Resources on 28 million shares
* Satyam Computer Services on 27 million shares
* Unitech on 24 million shares
