Statsguru: Bulls on Dalal Street once again back in the driver's seat

After some turbulence in September, the Bulls on the Dalal Street are once again back in the driver’s seat. The benchmark S&P BSE Sensex rallied nearly 10 per cent in the past 10 trading sessions and regained the psychological 40,000-mark after over seven months. The index closed at 40,509 on October 9, less than 3.5 per cent shy of the all-time high of 41,945, registered in January this year. India’s market capitalisation made a new record of Rs 160.7 trillion on Friday.

The index is nearly at the same level when the second Narendra Modi government assumed office and, since then, two events had a major impact on the stock market: The corporate tax cut of September 2019 and the Covid-19 pandemic. The boom, crash and recovery, however, is not uniform. The mid-caps, for instance, have shown the strongest recovery as a class, growing 5 per cent. BSE 100 has recovered, but small caps have lost 5 per cent, chart 2 reveals.

The large cap stocks as a lot seem to have barely recovered to the level more than a year ago. But among them, some blue chip stocks have outperformed strongly: Reliance Industries, Asian Paints, and Infosys have risen 50-75 per cent during this period (chart 3).

Most of these gains have happened while the pandemic is still running its course. Chart 4 shows how key listed companies have contributed in boosting the Sensex by 14,500 points in the past six months. While Reliance’s gains have been propelled by its retail and digital business, tech giants and private banks have contributed the most.

But behind these gains is the overvaluation of stocks. While banks have shed some of their overvaluation, infrastructure company stocks have become more expensive, suggests chart 5.

Finally, chart 6 reveals who is making this recovery possible. After the pandemic struck, foreign portfolio investors have invested more funds than domestic mutual funds, who are in fact pulling out of the equity market.

Source: BSE, NSE, SEBI, NSDL, Compiled by BS Research Bureau

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines