India’s stock benchmarks – Sensex and Nifty – are near their all-time highs but the euphoria is missing in the broader market. Several mid- and smallcap stocks have missed the current leg of the market rally. According to data compiled from stock exchanges, over 100 stocks in the BSE 500 index are currently trading at less than 60 per cent of their 52-week highs. Moreover, 67 companies have fallen by over 50 per cent from their highs, data showed.
The Sensex has rebounded over 10 per cent from its February lows and is currently trading near record high levels. Even the broad market indices – BSE 500 and BSE Midcap index – have risen 10 per cent and 8 per cent, respectively in the period but that was because of gains in a few stocks Market participants say bulk of the institutional flows coming into equities these days are going into select few high quality stocks while most of the broader markets stocks continue to be under pressure. The absence of flows from portfolio management services (PMSs), a product category for the rich, too has led to the underperformance in smaller shares.
Non-banking finance companies (NBFCs) led the tally of stocks that have fallen the most from their one-year peaks with stocks such as Reliance CapitalNSE 0.69 %, Edelweiss, Centrum CapitalNSE -1.34 %, SREI Infra Finance and PNBNSE 1.68 % Housing Finance losing over half of their peak stock price. Financially-stressed companies such as Reliance PowerNSE 15.89 % and Jet AirwaysNSE -2.72 % too have lost bulk of their market value from the peak.
While the steep fall in these stocks have brought down the valuation premium they were commanding compared to a year ago, market experts are advising retail investors to stay away from taking any heavy bets on them currently.
“The problem with most of the mid-cap stocks is corporate earnings,” said Prashant Prabhakaran, chief executive officer, Yes Securities. “So even though they have fallen steeply from their highs, in most of the stocks it still doesn’t make an investment sense for retail investors.”
Analysts say the corporate earnings have remained sluggish on account of weakness in the broader economy. Further, there are also several sector specific headwinds in banking, infrastructure, cement and oil marketing companies. However, the economy is currently showing early signs of revival and investors should pick the stocks that would benefit the most from a likely revival.
For instance, banks with strong retail presence could be good bets since the retail loan books of several lenders have seen robust growth in the quarter ended March 2019. Analysts said consumption stocks could struggle because of the slowdown in the economy and pricey valuations.