Sensex highs have a narrow base

At 14,570, the Sensex might be close to a new high, but not all stocks have contributed to the rally.

Indeed, slice it any which way, data over the last six to eight months shows that just a handful of scrips have contributed to most of the gains, with the majority disappointing shareholders.

In the six months between November and May, the Sensex posted a rise of 660 points, in which two scrips, Bharti Airtel and Reliance Industries (RIL), chipped in 782 points (15 stocks posted negative returns).

A look at the data for the last three months reveals that of the 731-point gain in the Sensex, two stocks ""RIL and Tata Steel "" contributed as much as 69 per cent.

Says Anup Maheshwari, head, equities, DSP Merrill Lynch, "It's true that the rally has been a narrow one. That's primarily because what's driving the market is no longer a P/E (price-earnings) re-rating but some kind of corporate action or an earnings surprise."

Maheshwari adds that with the market no longer so cheap, given that the Sensex is trading at a multiple of 18 times estimated FY08 earnings, a P/E re-rating appears difficult.

Indeed, in a sample of 2,561 stocks traded on the BSE in the last three months, more than 50 per cent have either seen a fall in their price or have remained flat.

During this time, the Sensex gained around 12.4 per cent. The same sample studied across one year shows that 48 per cent of the stocks lost value or remained at the same levels while the Sensex gained 39.9 per cent.

While about a year back the rally was even narrower because there were far more outperformers in the universe of large cap stocks, the trend is changing to some extent since March with more mid cap stocks turning outperformers.

Says Sanjay Sinha, CIO, SBI Mutual Fund, "The market has been driven by foreign investors, which have brought in around Rs 17,000 crore between January and now. Since 93 per cent of their holdings are in the top 100 stocks, the rally is skewed towards large caps."

Sinha, however, feels that over time there will be interest in mid-caps and that the rally will become broader.