The view from Sensex 11,000

MUMBAI: The real story of the stock market is not that the BSE Sensex closed above 11,000 on Monday, but that the bulk of the market has been left behind. While both the 30-share Sensex and the 50-share NSE Nifty closed at their all-time peaks of 11,079 and 3,321.65, respectively, the market as a whole has seen more losers than gainers since December.

On an average, 1,352 shares lost ground daily on the BSE versus 1,133 that gained. On the NSE, losers outnumbered gainers 464 to 399. Look at it another way: of the 20-odd indices put out by the NSE and BSE, only five managed to beat the Sensex this year. The capital goods index led the pack with gains of 39 per cent since January 1 (against 18 per cent for the Sensex). In other words, the big movements have been restricted to high-profile, sentiment-influencing stocks.

An analysis by Anagram Securities over a longer period underscores this. According to VK Sharma, director and head of research at Anagram, only 32 per cent of stocks have gained since early October.  

This means two-thirds of the market has been left out of the recent bull run. “Small and mid-cap stocks haven’t performed as well as large-caps.”

Nilesh Shah, chief investment officer, Prudential ICICI Mutual Fund, has an explanation. “Since January, there have been new foreign institutional investors (FIIs) entering the market and they are more comfortable entering large-capitalisation stocks. This is one of the reasons for the rally in large-caps. It is only after they gain familiarity with the Indian markets that they will invest in mid-caps.” Mid-cap stocks can be loosely classified as those with a market value of up to Rs750 crore.

That FIIs haven’t invested in high-growth mid-caps may be good news. Sharma says the weakness in mid-cap stocks will come down once the April-May results season removes performance uncertainties. “Large-cap stocks may tend to correct, but only if there is a broader correction in the international market,” he adds.

Shah says the more likely scenario is not of large-cap stocks correcting (ie, falling in value), but mid-cap stocks with potential rising in value to close the gap with large-caps.

There is reason for this optimism. Even as FIIs have become cautious (their daily average net purchases have fallen from Rs399 crore in February to Rs292 crore in March) domestic mutual funds are stepping into the breach. After being net sellers in January and February, they bought big in March — Rs171 crore daily on an average. Indian investors are now driving what’s left of the rally. So, the bull run may still have some steam left.

With Sanat Vallikappen