The Hindu Business Line : Most Sensex stocks not part of recovery party

Even though the benchmark indices have been recording new peaks, two-thirds of the Sensex stocks continue to trade well below the peaks recorded in 2006 or early 2007.

An analysis using 52-week highs of these stocks shows that the recovery has not been on even footing. As many as 20 of the BSE Sensex’s 30 stocks are trading far below their 52-week high prices.

Only stocks such as SBI, Bharti Airtel, Reliance Communications, NTPC, Tata Steel, Reliance Industries and HDFC are quoting close to their all-time high or within 15 per cent from their 52-week high.

The natural inference is that these stocks have been responsible for the market recovery.

The situation is the same for the NSE, which is also ruling near its all-time high.

The same companies are predominantly responsible for the NSE’s current run-up.

According to market participants, clever index management indulged by big institutions is the main reason for the market recovery.

An analyst with a domestic institution, who did not want to be named, said that many large players including foreign ones are holding long positions in the Nifty futures.

These players ensure that the Nifty remains propped up by buying the index heavyweights in the cash market.

Stocks in sectors such as IT, autos, FMCG and healthcare did not participate in the post-March recovery.

IT companies such as Infosys, Wipro, Satyam and HCL Technologies are all quoting far below their all-time highs mainly due to the rupee strengthening against the dollar.

Automobile players such as Bajaj Auto, Tata Motors, M&M and Maruti Udyog are quoting weak on rising interest rates and resultant fear of waning demand.

On the other hand, banking and finance stocks such as ICICI Bank, HDFC, HDFC Bank and SBI are quoting near their all-time highs.

These stocks have been drawing strength from strong growth in non-food credit and real estate.

The other major drivers, Reliance Industries and Reliance Communications, are gaining post-split as investors see potential value unlocking in these companies.

Ms Aishwarya Deepak, Research Head of Apollo Sindhoori Capital Investments Ltd, said: “It is true that the BSE Sensex is being led by five stocks, which have 28 per cent weightage in the benchmark. Construction and power companies can be added to the list.”

She added: “Further, the industries that are trading at a discount constitute almost 35 per cent of the Sensex weightage.”

According to Mr T.S. Harihar, Vice-President (Equity Derivatives), Karvy Stock Broking Ltd, India as an asset class is being re-rated, which is likely to translate into a higher P/E for growth stocks.

“While the phenomenon of prices chasing earnings may slow down, that of prices chasing higher discounting has not yet begun. From that perspective, new highs in the market are very much on the cards.”

He added that the existence of the futures and options market added a new dimension to market dynamics, because institutional positions account for a major chunk of the open positions.

Since most institutions hedge their holdings in the cash segment by selling futures, these positions are predominantly short positions.

As the market moves up, the large players are forced to square these short positions, thus exerting upward pressure on the markets.

However, Mr V.K. Sharma of Anagram Stock Broking said that this was a sign of the market tiring.

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