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About a fourth of the Sensex stocks have given negative returns since the current rally began, even as the index made a record all-time high, a sign that the rise is not broadbased. Since the last rally in December 2011 to the current highs, just 22 Sensex stocks have given positive returns while eight (largely from the capital goods, metals and power sectors) have posted negative returns.
In contrast, the last two market rallies that saw the Sensex go past the 20,000-mark (of June 2006 to January 2008 and March 2009 to November 2010) saw all 30 stocks of the Sensex post gains. Price comparisons of Sensex stocks in the current rally show capital goods, metals and power stocks are among those that have seen negative returns even while the index has gained.
The analysis has been done on the basis of price movements. Stocks of Jindal Steel, BHEL, GAIL and Coal India have lost value from the market’s last bottom in December 2011. Jindal Steel lost nearly 50 per cent whereas BHEL is down 39 per cent from the market’s previous lows. GAIL and Coal India are also trading lower by 9.4 and 6.5 per cent respectively.
Analysts say the current rally is largely restricted to companies that have forex earnings and are going to benefit from rupee depreciation whereas companies in capital-intensive sectors are facing slacking revenue and profit growth. Says Daljeet Singh, head of research, IndiaNivesh, “Foreign investors are chasing the 15-20 stocks that will do well because of demographics and lower working capital.”
This rally is also seeing the lack of retail investor participation who normally chase all stocks. “The previous two rallies of 2008 and 2010 had retail investors participating who were generally buying everthing and anything and that's why you saw more stocks going up earlier,” continues Singh.
This time around the foreign equity investors are also becoming more choosy after the Fed has postponed the QE tapering program as they are essentially chasing the large- and mega-cap stocks. Says Ajay Bodke, head investment strategy and advisory, Prabhudas Lilladher: “The money that is coming is essentially top down money coming out of developed markets into emerging markets and these will come typically into the top few names where the pre-requisite is liquidity as this is essentially hot money. There's a touching belief that this time its different, but in reality it never really is.”
The gains from biggest movers in the current rally has also not been as much as the previous two peaks of Jan 2008 and November 2010. This time's best performing sector has been Pharma with 65.6 percent gains as compared to power which gained 430 percent and metals up 318 percent. In this current rally, power and metals lost 3.8 and 19.1 percent respectively.
