Why 60% of NSE 500 stocks remain below their 2024 highs

Mumbai: The Nifty 50 and Nifty 500 are 5-6% off their record levels in September 2024, but a large part of the market is yet to catch up despite the recent rebound in these indices. While most remain below their 2024 highs, at least 60% of the stocks on the NSE 500 index are still over 20% below those levels last year, according to an ETIG study. Analysts said these stocks may not cross their highs of 2024 in a hurry as concerns over elevated valuations remain, while the likelihood of an outsized earnings growth remains thin.

The record-breaking rally in 2024 had pushed many stocks to lifetime highs at various points leading up to September-when the four-year bull run reversed. In the Nifty 500 index, 24.2% or 118 stocks are trading 20-30% away from their peaks hit in 2024, while 83 stocks remain 30-40% away from their highs and 113 are at least 40% below their highs. The Nifty 500 Index and benchmark Nifty Index are 6.1% and 5.3%, respectively, away from the peaks in September 2024.

"This points to a narrow market rally, often driven by specific sectors or large-cap names," said Sudeep Shah, vice president and head of technical and derivative research, SBI Securities.


While headline indices like Nifty 50 or Sensex have rallied, a significant portion of the market-particularly in the mid- and small-cap segments is still lagging, said Shah. Jaiprakash Power Ventures, Network 18 Media & Investments, Zee Entertainment Enterprises, Sammaan Capital and Suzlon Energy along with Adani Total Gas, MMTC, Yes Bank, HFCL and Vodafone Idea are among the stocks that are 84-97% below their all-time highs. Four stocks including Laurus Labs, Fortis Healthcare, Shyam Metalics & Energy and Torrent Pharmaceuticals are trading above their highs.

Elevated valuations
Ashwini Shami, EVP & senior portfolio manager, OmniScience Capital said that despite being 20-30% off the peaks, the broader market remains overvalued as the stocks that traded at 50 price to earnings (PE) ratio-a valuation measure-during the bull market before September, remain at around 30 times, even after a 30-40% drop in stock prices.

"Even a reasonably high growth company cannot be expected to deliver 35-40% growth to justify the valuations," said Shami. "The overvaluation is not over in the small and midcap stocks and these stocks are not expected to go back to the previous highs as that momentum was driven primarily by euphoria."

Between September and February, the Nifty 500 index slumped 18.8% while the Nifty Mid-cap 150 and Small-cap 250 indices tumbled 20.6% and 25%, respectively. In the last three months, the mid-cap and small-cap indices rallied 9.2% and 12% each while the Nifty 500 index gained 5.3% in the same period.

INVESTORS CHOOSY
With uncertainty over corporate profitability and concerns over tariff, investor appetite in the stock market has been selective. The trend may continue. “Money is expected to flow to repriced pockets like the largecaps which are fairly priced, and within sectors, banks, housing finance companies, and financial services companies even in the mid and small-cap basket could offer investors a better bet,” said Shami.

“These are expected to lead the next rally instead of the winners from the previous peaks.” Shami said that select stocks in the infrastructure and power space also offer opportunities, but investors must remain wary of high valuations. Many midcaps and PSUs have surged ahead of earnings, driven more by sentiment, liquidity, and policy optimism than by fundamentals, said Shah.

“The valuations in some pockets have turned reasonable but are still trading at premium to their historical averages in others, especially in sectors such as consumer durables, FMCG and select midcap IT names,” Shah said.