Narrow rally drives indices to peak



In the past couple of weeks,  equity benchmarks Nifty 50 and Sensex have touched several all-time highs. However, the rally has been driven by a small set of stocks. Only 15 companies in the Nifty 50 are trading at their all-time highs. This means that only 30% of the Nifty 50 stocks are at their peaks. L&T, M&M, Tata Motors, Titan, and Britannia are a few names from the pack.In the 30-stock Sensex, merely 12 firms are at their all-time highs.

In fact, several stocks are way below their lifetime highs. For example, within the Nifty 50 Index, there are four stocks that are more than 40% away from their record highs, and 11 stocks are 20-40% away. IT giant Infosys, which has a weightage of 5.79% in Nifty, is trading at Rs 1,331.15 — 31.87% away from its all-time high of Rs 1,953.70 it reached in January 2022. Other IT majors Wipro and Tech Mahindra hit their all-time highs in 2021, but have not yet reached those levels again.

“When recovery takes place, it doesn’t happen at the same pace in all the stocks. The banking-financial and IT sectors contribute nearly 45% to the index. As they didn’t perform much, it was left for other sectors to perform, like auto, which is otherwise not a heavyweight. If the heavyweight sectors had performed, the index would have already crossed 20,000 by now,” said Prakash Diwan, an independent research analyst.

Other notable stocks substantially away from their all-time highs are ONGC, Adani Enterprises, Coal India, Hindalco, and IndusInd Bank. Among blue-chip stocks, Reliance is currently 7.69% away from its lifetime high of Rs 2,855, which it reached on April 29, 2022. Similarly, FMCG major Hindustan Unilever is 5.6% away from its record high of Rs 2,859.10, which it hit in September 2021. The same has been observed in the mid-cap segment as well.

In BSE midcap, out of 126 stocks, only 28 stocks are at their all-time highs. Experts predict that the sustenance of the index rally will depend on global factors and the upcoming results season, which will begin this week with IT companies. “Rallies usually begin with a few companies surging, and once the benchmark indices begin to rise, others start participating.  Soon, companies will start announcing their quarterly results. The corporate earnings outcome will keep stock-specific volatility high. In addition, concerns with regard to global growth may impact investors’ sentiments. Investors should diversify their investment across sectors,” said Rajesh Agarwal, head of research, AUM Capital.

According to Sudeep Shah, head of technical and derivative research at SBI Securities, investors should look to buy the dip until 19,000 levels are not breached on the downside on the Nifty. While investors should accumulate quality mid & large-cap stocks, traders should focus on stocks and sectors that are relatively outperforming the Nifty as of now, he added.


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