Investors preference for select stocks may hinder Sensex rally

Only 31% or 62 of the top 200 stocks rose on Sensex to a new record high from the previous one on 29 January. Photo: Mint

Only 31% or 62 of the top 200 stocks rose on Sensex to a new record high from the previous one on 29 January. Photo: Mint

Mumbai: While benchmark equity indices recorded new highs on Thursday, the rally is tilted in favour of a handful of stocks, and is far from being a broad-based one.

This raises doubts on the sustainability of the rally, as investor interest lies in select few quality stocks.

Only 12 of 30 Sensex stocks logged gains on the benchmark index’s journey to new record high from the previous one on 29 January.

The Sensex stocks which gained were Kotak Mahindra Bank Ltd, Hindustan Unilever Ltd, Tata Consultancy Services Ltd, Mahindra and Mahindra Ltd, Asian Paints Ltd, Reliance Industries Ltd, IndusInd Bank Ltd, Infosys Ltd, HDFC Bank Ltd, Yes Bank Ltd, Housing Development Finance Corp. Ltd and ITC Ltd.

The ratio turns worse for broader indices.

Only 31% or 62 of the top 200 stocks rose on Sensex’s journey to a new record high from the previous one on 29 January. In the BSE 500, only 117 or 23.4% stocks registered gains in the same period.

For the BSE MidCap and BSE SmallCap indices, only 25% and 13.33% of total stocks gained in the period.

“There are only few index heavyweights that are driving the market up. The rally is not broad-based, but very skewed in favour of a select few,” said Harsha Upadhyaya, chief investment officer (equity) at Kotak Mahindra Asset Management Co. “If you look at median performance for broader indices between previous record high and current, it would be negative double digits.”

image

The median performance for components of BSE 500 index in the period was a decline of 14.07%. For BSE MidCap and BSE SmallCap indices, it came in at declines of 11.17% and 22.6%, respectively.

“ETF (exchange-traded fund) money has been driving select large-cap stocks higher, and also sharp correction in mid and small cap space has created more divergence,” he added.

Others shared the view.

“This year, there is a huge difference among other indices. Mid- and small-cap indices are trading substantially lower. The rally is driven by few sectors and stocks,” said Navneet Munot, chief investment officer, SBI Funds Management Pvt. Ltd.

BSE MidCap and BSE SmallCap have fallen 12.74% and 14.62% so far this year, respectively, while the benchmarks Sensex and Nifty are up 7.32% and 4.68%, respectively.

“I think markets will be watching the earnings trajectory, monsoon and global developments. Given the magnitude of global concerns of a trade war, volatility will continue,” added Munot.

First Published: Thu, Jul 12 2018. 10 40 PM IST

Source: livemint