84% BSE stocks still trading at a share price below their pre-Covid high

Less than 1% of firms now account for 50% of BSE market cap

The rally on Dalal Street after the March 2020 low has been billed as among the broadest, with wide participation of mid- and small-cap stocks. The BSE Midcap and Smallcap indices made new life-time highs in January and February this year, within weeks of the benchmark BSE Sensex reaching a fresh peak. The Sensex and Nifty50 made fresh life-time highs in November 2020 and made further gains after that.

The stock price movement of individual stocks, however, suggests that the Indian equity market remains polarised as ever, and most of the gains in the market capitalisation accrued to a handful of top companies across sectors.

In all, only 16 per cent of actively traded stocks on the BSE made fresh all-time highs in the pandemic period, while the others are still trading at a share price below their pre-Covid high.

Only 605 of 3,824 actively traded stocks on the BSE made fresh life-time in the rally after the market low on March 23, 2020.

These top-performing companies dominate the market in terms of market capitalisation; underperformers have seen an erosion in their market influence. The underperforming stocks had a combined market capitalisation of Rs 67 trillion as of Monday, accounting for just a third of the combined market capitalisation of all BSE-listed companies.

Some top companies that still trade at a share price below their pre-Covid high include ITC, Axis Bank, Maruti Suzuki, Larsen & Toubro, Sun Pharma, Oil & Natural Gas Corporation, Hindustan Zinc, Tata Motors, NTPC, Mahindra & Mahindra, and Bharat Petroleum.

At the other end of the spectrum are firms like Reliance Industries, Tata Consultancy Services, Infosys, HDFC Bank, HDFC. ICICI Bank, Adani Ports, and Hindustan Unilever.

This, analysts say, has resulted in a concentration of the overall market capitalisation among a handful of market leaders in various sectors.

For example, the six biggest companies in terms of market capitalisation now account for a quarter of the combined market capitalisation of all BSE-listed companies, and a half of the market capitalisation is accounted for less than 1 per cent of the listed universe, or 32 companies. Similarly, the top 284 companies account for 90 per cent of the entire market capitalisation.

Reliance Industries, India's biggest company by market capitalisation, is now more valuable than the bottom 90 per cent of companies combined.

Analysts say the market cap concentration has also made it tough for many long-term investors to profit from the current rally. “In the current rally, profits accrued to only those investors who brought in fresh money after the March 23, 2020, low. While those who held on stocks that underperformed in the pre-Covid period are still in the red," says G Chokkalingam, founder & MD Equinomics Research & Advisory Services.

While the majority of laggards are from the mid- and small-cap space, besides public sector companies, the list includes many prominent names from the private sector.

The number of companies making fresh life-time high, on the other hand, continue to expand each passing month as the rally matures. A record 204 companies have scaled new highs in the first 15 days of March this year. With this, 446 companies have made new lifetime during the current calendar year so far.

Many analysts expect the trend to strengthen further as the rally matures and a recovery in corporate earnings gather pace. Better-than-expected growth in economy, besides corporate growth, is expected to result in more small- and mid-cap companies participating in the rally and scaling new highs in the forthcoming quarters.