17 of the 30 Sensex stocks are now below their 200-day moving average

The benchmark Sensex is hovering around its lifetime high, but more than half of its components are trading below their long-term average prices. According to data, 17 of the 30 Sensex stocks are now below their 200-day moving average (200-DMA). This indicates that the index gains are driven by few stocks, while most others reel under pain. The Sensex has gained about 7 per cent in 2018.

The rally in the index is largely on account of the strong performance by three stocks—Tata Consultancy Services (TCS), Reliance Industries and HDFC Bank. These three blue-chip stocks have contributed to bulk of the gains. On the other hand, a large number of stocks have corrected sharply. Tata Motors, Vedanta and Bharti Airtel are all down over 30 per cent this year.

“Investors' sentiment suggests a bear market. A majority of Nifty constituent stocks are down and 40 per cent of them are down more than 10 per cent in 2018,” highlights a report by foreign brokerage, UBS.

Analysts consider 200-DMA as a key technical indicator for determining the overall long-term trend. A stock trading above its 200-DMA is considered to be in the bullish zone, while stocks below this metric are considered to be in a weak trend.

Among Sensex stocks, companies in the metal and pharma sectors have been the laggards this year. Analysts expect this performance divide among Sensex companies to carry on in the near to medium term.

Drop in commodity prices amid demand uncertainty due to the global trade war has hit investors' sentiment towards the metal sector. Last year, metal stocks were among the best performers, thanks to an improvement in the global economic outlook. Meanwhile, shares of pharma companies have been affected by US regulatory woes. The weight of pharma companies in the Sensex is now at a seven-year low. Analysts expect this pressure on pharma players to continue in the medium term.

The information technology (IT) sector, which was a major underperformer last year, has seen a revival in fortunes due to the weakness in the rupee. TCS and Infosys, India’s two largest IT players, have seen their shares rally 29 per cent and 21 per cent, respectively this year. Both these stocks have high weightage in the index.

Analysts say, the few companies might continue to dictate market trend. UBS says it is typical for top 10 stocks during periods of currency weakness. The rupee is now near its all-time low against the greenback. “The rupee has suffered some real and nominal depreciation over the past few weeks, which augurs well for reported earnings,” says a report by Morgan Stanley.