Only 5 stocks are holding up your Nifty! What does it mean?

NEW DELHI: A 4 per cent gain in the Nifty50 in the first six months of 2018 has been far lower than the 10 per cent jump that the index had seen in the comparable period last year.

That too, because five index stocks have been holding the Nifty pack from falling like a pack of cards. As of now, the upside for the index looks limited.

Data showed Infosys, TCS, HDFC Bank, Kotak Mahindra Bank and HDFC accounted for two-thirds of all the gains that the NSE barometer has logged so far this year. This was not the case last year, when a majority of the constituents had contributed to the 28 per cent surge in the index.


For the five stocks, 70 per cent of addition to market capitalisation during this period was due to an expansion in multiples. The rest was led by growth in one-year forward earnings due to roll forward and estimate changes, brokerage BofA-ML said in a note.

Re-rating of the ‘quality’ corner of the market has to be finite and cannot hold up the index indefinitely, it said.

Historical data shows there has been a strong correlation between market breadth and market returns. Experts believe unless other index stocks start performing, the index cannot move up beyond a point.

For the index’s market breadth (advance-decline ratio) to improve, earnings beats is what is required, and not absolute earnings growth, BofA-ML said.

"These seem unlikely in the near term due to elevated expectations. India is relatively devoid of domestic catalysts, though uncertainties around 2019 elections are likely to increase through the year. The latter may particularly hurt midcaps, which on an aggregate still trade at PE levels, which are at an 86 per cent premium to those of largecaps. Lower prices could then be a reason to turn bullish on Indian equities. Even though domestic fund flows improved in May, the risk of acceleration in external selling remains.

The brokerage has a December target for Sensex at 32,000, as it feels a combination of external shocks such as accelerating foreign selling, volatile domestic inflows and strong issuances can drift the market downward.