The equity markets may have saluted the UPA’s victory for a second consecutive term in May 2009 — with the BSE Sensex rallying 17% — but companies from policy-sensitive sectors have largely underperformed the market in the last five years.
FE's Policy Sensitive Index (PSI), comprising 27 stocks from eight sectors, has hugely underperformed the Sensex since 2009. While the PSI's divergence with the 30-share benchmark started to widen since July 2009, it has increased considerably in the last two years, giving a negative return of 8% against a 21% rise for the Sensex.
The fortunes of PSI companies are, to a considerable extent, reliant on political decisions and policy arbitrage related to land, environment and other natural resources. But policy impasse and a series of scams have pulled down PSI’s performance compared to the broader market.
In the past, taxation of oil companies, and the timing and quantum of price changes in petroleum products used to affect stocks of companies in these sectors. The extent of hike in the minimum support price for sugarcane or the speed with which construction projects are granted, too, had invariably impacted stock prices of companies. Since 2012, policy uncertainties have become more damaging, affecting companies in many segments, including power, mining and Oil & gas.
For example, the ban on iron ore exports impacted the stock returns of Sesa Goa (now Sesa Sterlite Ltd, which is not included in the PSI due to the merger impact), while the unraveling 2G scam hit DB Realty,
The Kalanithi Maran-promoted Sun TV and SpiceJet as well as stocks of the Anil Ambani Group slumped after the start of CBI investigations.