Nearly a quarter of companies contribute more than 75% to BSE100 gains

Benchmark indices in recent years have been driven largely by a handful of stocks. But the trend is changing somewhat as the recent rally has been relatively broad-based.

After being beaten down in March, bank stocks are propelling the indices to new highs, taking over the baton from the Reliance Industries and IT firms. More stocks are now contributing to the performance of the benchmark indices.

More than 75% of the BSE100 performance in FY21 so far has come from 24 stocks. In contrast, the same magnitude of returns were contributed by just five stocks in FY19 and six in FY18.

“Normalisation of economic activity continues, but second wave of Covid-19 poses near-term challenges even with hopes of vaccine turning into reality,” said ICICI Securities in a strategy note, adding limited high-frequency data for the month of November 2020 so far indicated that month-on-month growth continued although the momentum lost some steam.

The BSE100 index, which boasts of about 70% of the combined market capitalisation of BSE has surged over 57% in FY21, with all constituents trading in the green.While heavyweight RIL accounted for 12.5% of the index gain, HDFC Bank, Infosys and ICICI Bank, among them added another 23%, Bloomberg’s data show. The combined weight of 24 stocks that contributed 75% to the index gains stands 65.6%.

Foreign portfolio investors (FPIs) continue to purchase Indian shares even as the domestic institutional investors (DIIs) remain net sellers. Between November 1 and now, the FPIs have bought shares worth $11.9 billion taking their year-to-date purchases to $18.4 billion — the highest since 2013. On the other hand, local investors, including mutual funds, have offloaded shares valued $8.1 billion since November, Bloomberg data showed.

After two successive years of negative returns, the broad-based indices — BSE Midcap and BSE Smallcap — have outdone the benchmark Sensex in 2020. While the BSE Smallcap index has returned 28.3%, which is more than double of Sensex’s returns at 11.8%, the gauge for midcap stocks surged 17.6% between January and now. Nevertheless, the rally in stocks has stretched valuations further.

“Market valuations continue to turn expensive – it is now above +1 standard deviation on cyclically adjusted PE ratio, while on the trailing and forward P/E it was already above +1 s.d”, says ICICI Securities.