Measuring Sector Performance

Periodically investment managers and investors take a stock of performance of various sectors. Objective is to find out which sector(s) have been the best performers (those which provided returns i.e. increased in value, above what the market did) and worst performers.

A convenient way of measuring performance of a particular sector could be using the sectoral indices provided by NSE or BSE. I have used NSE indices for the analysis. For gauging market performance, one can look at the broad market index like NIFTY.

This analysis tells us how much each sector has risen/fallen vis-à-vis the market. Then, a fund manager digs into the facts that why a particular sector outperformed/underperformed the market. Was it because of the fundamentals or bullish/bearish opinion of the investors? In the first case, fund manager may accept the respective rise/fall in the sector. However, in second case, the fund manager can see an opportunity to invest in companies in underperformed sectors and liquidate companies in outperformed sectors.

Following graph depicts the performance of various sectoral indices maintained by NSE. The graph shows performance from 01-Sep-08 to 18-Sep-09.

Let us now try to figure out the performance of various sectors.
The above graph tells us that Realty has been the worst hit sector despite the ongoing rally. The reasons could be bleak demand, pressure of borrowings, and still not-so-positive consumer confidence due to poor job market.

Banking sector has been a sure-shot winner with PSU banks enjoying a whopping rise of 51% and overall index of banks witnessing a performance of 37%. This could be attributable to the unjustified/excessive thrashing which these banks bore when everyday a US bank was going burst. With no such case being witnessed in India, investors have reposited their confidence back. Also, the expectation of rising of policy rates like CRR, repo rate, etc. in future, from their 10-year lows, can be looked at as an indicator of better results in banking and financing sector.

The fall of IT sector during 2008 was taken by some investors as justified with the view that recessionary business conditions in US and other developed countries will lead to diminished outsourcing business of Indian IT companies. Again, the fall was felt unjustified by some investors who grabbed the opportunity and did value-investing. Hence we observe a return of 27% in just over a year.

Infra has been one of the most talked about sectors in India, especially in the past two years. Reasons could be – Commonwealth Games 2010, widespread unemployment due to diminished business activities in slowdown, poor-to-late monsoon, agenda of the once-again elected Congress government, China’s drive in infra development, etc. Companies included in this index are - ABB, BHEL, Bharti, DLF, GMR, IVRCL, Idea, Indian Hotels Co. Ltd., Jaiprakash, Jet Airways, L&T., MTNL, NTPC, Reliance Communications, Reliance Infrastructure, Reliance Power, Siemens, Suzlon, Tata Communications, Tata Power, Unitech.

A periodic analysis of sectors helps us in finding out which sectors were given a treat by the market and which were hit badly. For a value investor, this is fishing time as it might be that some stocks in the second case fell unnecessarily. Such stocks can provide opportunity to earn above market return in a small duration. But now we are talking only on base of fundamentals. So be careful.