Market turmoil hits financial services sector the most

Recent Slump Sees Segment Lose 14-37% Compared With Sensex Fall Of 12%

Bakul Chugan ET INTELLIGENCE GROUP

FASTER the rise, steeper the fall. And one sector that this maxim holds true for is the financial services sector. Though one of the principal beneficiaries of the market rally, it also turns out to be one of the hardest hit sectors in the recent market crash.
The year 2007 saw financial services companies like Motilal Oswal, Religare Enterprises and Edelweiss Capital make a strong debut on the stock exchanges. In stark contrast, 2008 has not begun on a pleasant note.
At a time when the Sensex tumbled by nearly 12% between January 8 and January 25, the share prices of financial services companies fell between 14% and 37%, higher than their theoretical expected declines calculated in sync with their beta.
So while India Infoline, with beta of 1.7, should have fallen by about 20% theoretically, the actual decline was much sharper at 25%. Even Reliance Capital, which fell by nearly 21%, exceeded its theoretical fall of 16%, considering its beta of 1.3.
And if this was the scenario at the closing of the bell, the intraday fluctuations saw some of the recently listed stocks going even below their issue price. Ironically, these were the very same stocks that listed with record listing gains a few months ago.
The concern evinced by analysts on these stocks with respect to high risk on account of market volatility has been proven right. Most of these stocks have now been labelled as high beta stocks, which imply very high volatility in relation to the market as a whole, rendering them a risky venture in sloppy markets.
While market volatility is keeping investors at bay from investing in these stocks, another cause of apprehension about this sector is with respect to performance in the ongoing fourth quarter. Having seen three quarters of stupendous performance, expectations from this sector are undoubtedly high. However, with the current choppy trades, these companies may have to end their financial year on a low-key note, contrary to the fanfare witnessed earlier during the financial year.
bakul.chugan@timesgroup.com