While the benchmark indices scaled past their earlier peaks to hit fresh lifetime highs on Tuesday, much of the market remains in the red. The rally is being driven by a handful of stocks and nearly half the Nifty50 companies are trading at huge discounts to their record highs.
Sensex and Nifty scaled new lifetime closing highs as investors remained in an intense buying mode for fourth session in a row on “near-normal” monsoon forecast and bumper corporate earnings optimism.
The Sensex started off on a bullish note at 39,040.30 and hit a new intra-day record of 39,364.34. It, however, finally settled at 39,275.64, 369.80 points, or 0.95%, higher, also marking its life-time closing high. The index has added 690.29 points in the last four sessions.
Similarly, the broader Nifty opened higher at 11,736.20 and breached the psychological 11,800-level (intra-day) for the first time ever. The NSE barometer settled the day at a new record closing level of 11,787.15, up 96.80 points, or 0.83%. Financial stocks took charge of the rally driven by sustained foreign fund inflows.
In the broader market, BSE large-cap, mid-cap and small-cap indices underperformed the benchmark Sensex.
While stocks including Vedanta, Sun Pharma and Tata Motors are trading over 60% lower to their record highs, state-run entities such as ONGC, NTPC and Coal India are hovering in the range of 43% to 49% lower to their peaks, data sourced from Bloomberg showed.
The Nifty 50 rallied nearly 18% from its October lows, of which six stocks – HDFC Bank, RIL, ICICI Bank, HDFC, Axis Bank and Infosys – having among them contributed more than half of the Nifty’s gains of 1,757.15 points.
Barring Bajaj Finserv, none of the Nifty constituents managed to breach their records on Tuesday when the Nifty50 surged 96.80 points, or 0.83%, to hit a new life-time high of 11,787.15 points. The Sensex rose 369.80 points, or 0.95%, to close at a high of 39,275.64 points.
Interestingly, nearly 70% all stocks with a market capitalisation of at least `1,000 crore are down in the last one year. Moreover, over a third of these 732 stocks have lost more than 20% of their value. While the Nifty MidCap Index is trading about 16% lower to its January 2018 highs, the Nifty Small Cap Index is about 30% lower to its record high of 9,580.30 points that it had hit in January last year.
The market breadth, indicating the overall health of the market, was tilted towards the losers over the last one year. On Tuesday, 894 stocks advanced on NSE, compared with 889 stocks declining, and 129 stocks remaining unchanged.
The rally this year has been driven by purchases of overseas investors that have bought stocks worth nearly $9.1 billion, a big swing from last year’s outflows of $4.6 billion. On the other hand, between January and now, the domestic institutional investors (DIIs) sold shares worth $1.9 billion, Bloomberg data showed.
With the strong inflow of foreign funds and benign oil prices, the rupee has gained nearly 6% against the US dollar in the last six months. The local currency closed at 69.61 on Tuesday.
Morgan Stanley expects the Sensex to touch 42,000 by December 2019, with an earnings growth of 24% in FY20. The foreign brokerage believes that credit growth is likely to accelerate, so large banks with deposit franchises are enjoying improved pricing power.
“The best way to play an upcoming earnings cycle would be to buy domestic cyclicals – both consumer and industrials – and financials, including banks, select non-bank financials, and real estate,” Morgan Stanley said in a note dated April 7.
The strong up move in select heavy weight stocks has left the markets expensive. At its close of 39,275.64 on Tuesday, the Sensex now trades at a price-earnings(PE) multiple of 18.9 times to the estimated one- year forward earnings, against the long-term average PE of 16.6 times.
This compares with 11.6 times for Kospi and 15.2 for Jakarta Composite. Russian equities were the cheapest in the emerging market with a forward price-to-earnings ratio of 5.7, Bloomberg data showed.
(With inputs from PTI)