The year 2008 is regarded as the year of the global financial crisis. The crisis is considered to be one of the worst financial crisis since the Great Depression of the 1930s.
It started in 2007 with a crisis in the subprime mortgage market in the United States. This eventually turned into an international banking crisis with the collapse of heavyweight investment bank Lehman Brothers on September 15, 2008. Bailouts of financial institutions along with monetary and fiscal policy was put to use with the aim to prevent a possible collapse of the world financial system.
Let us see how the global financial crisis impacted India and the capital market.
The benchmark index witnessed the sharpest correction ever losing as much as 1408 points. The day, often regarded as Black Monday, resulted in a high degree of volatility that panicked investors. The sharp decline was a reason for the weak global cues amid fears of the US recession.
The fall continued for the second day with the BSE Sensex hitting a low of 15,332, down 2,273 points. However, over the day the index managed to recover a portion and closed at 16,730. The day witnessed trading suspension during the initial hours as the benchmark crossed the lower circuit limit of 10% thereby spiking trading halt.
The Sensex lost nearly 5% as the global concerns continued.
The Sensex lost nearly 900 points on frantic selling by funds. The sell-off was triggered by deepening concern over United States recession and some Budget-related matter.
The index corrected by 951 points to close at 14,809 owing to weak overseas market and unabated selling.
The index plunged as much as 1070 points to close at 8701. The crash was led by a massive sell-off in the small-cap and mid-cap counters.
With the domestic markets being held hostage to possibly the worst financial crisis, defensive stocks have naturally come out on top. Defensive stocks such as FMCG and pharma performed well amidst the crisis.
Following is the snapshot of the top 10 stocks that was not hit by the 2008 crisis and were nearly the best performing stocks 2008-
Hindustan Unilever Limited (HUL) is an Indian fast moving consumer goods (FMCG) company that is headquartered in Mumbai, Maharashtra and is a subsidiary of Unilever, a British-Dutch company. HUL’s product portfolio includes foods, beverages, personal care products, water purifiers, and the likes.
The company was established in 1933 as Lever Brothers and was later renamed as Hindustan Lever Limited in 1956 as a result of a merger among Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd. The company got its current name in June 2007. The company employs over 16,000 employees.
During the crisis of 2008, the company remained a star performer gaining double-digit growth.
Another name that performed well during the crisis is Hero Honda (currently named as Hero Motocorp Ltd).
Hero Motocorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter manufacturer. The Delhi based company is the largest two-wheeler manufacturer in the world.
What’s incredible regarding Hero’s performance during 2008 is that despite the weak performance of the sector, the company delivered some splendid numbers due to its brand recall. The company utilized the purchasing power of the rural area and thus wasn’t hurt badly during the year. The strong performance resulted in the company’s stock climbing nearly 15% during the year.
GlaxoSmithKline Pharmaceuticals Ltd (GSK) is the subsidiary of GlaxoSmithKline plc. The company is one of the oldest pharmaceuticals companies in India and sells prescription medicines and vaccines. The company delivered close to 11% during the year.
I believe HUL and GSK performing well during 2008 is not surprising as that is the kind of bet one can expect from investors. During crisis or period of high volatility, investors shift to defensive bets, and FMCG and pharma indices are the best performers among defensive.