Sensex Rally Only Due To Heavyweighted Stocks
Statistical evidence compiled by the Business Standard Research Bureau (BSRB) does not support the general assumption that there was an all-round increase in the stock prices during the current rally of the BSE Sensex.
In less than three weeks, the Sensex surged 11 per cent from 3,685.31 on May 28 to 4087.64 on June 17. But the increase was largely due to the top five Sensex heavyweights. These stocks contributed 255 points in a Sensex spurt of 402.33 points.(The comparative data for the study has taken May 28 as the base, since the recent rally began on that day with a Sensex level of 3685.31.)
Hindustan Lever, with the current Sensex weightage of 10.19 per cent, added 97.75 points to the spurt. SBI with 42.73 points (weightage of 9.04 per cent), MTNL 38.75 points (weightage of 9.53 per cent), Reliance 38.87 points (7.66 per cent) and ITC 37.25 points (6.2 per cent) participated in the Sensex surge of over 4000 marks.
The data on advances and declines, trading volume and the scrips touching 52-week highs and lows also do not support the assumption of a wide spread rally.
The price appreciation of 11.2 per cent in A group scrips, which contains all the Sensex-based scrips, confirms the spread of the rally. Firming up of investor friendly B1 scrips by an average 5.7 per cent and a marginal decline in B2 stocks reveals the limitations of the rally.
The high and lows touched during the period between May 28 and June 17 also gives an indication that the price rise was not sustainable.
In the A group, 19 scrips touched 52-week highs, while 16 others crashed to their 52-week lows. In the B1 group, 37 stocks scaled a high while 208 stocks hit their 52-week bottom. In the retailers dominated B2 group, 87 scrips recorded 52-week highs and 940 dipped to 52-week lows.
The advance/decline ratio also tilted heavily towards A group scrips. While A group registered 84 advances and 14 declines since May 28, B1 had more balanced advances (283) and declines (292). The B2 group lagged behind with 987 advances and 1361 declines.
The trading volumes also show A group dominance. Since A group stocks are more liquid than B1 and B2 stocks, the volume in A group always accounts for about 95 per cent of the total volume
Though the turnover at Rs 12,224 crore touched the roof on June 17 on the Bombay Stock Exchange, the trading in scrips remained listless at around 2000 per day which is about 33 per cent of the stocks listed on the BSE. While most of A and B1 group stocks gets traded daily, about 80 per cent of the B2 group stock remain dormant most of the time.
The sectoral analysis reveals the preference of investment. The hardening of tea shares by about 30 per cent within a fortnight is an evidence of investors awareness. A 24 per cent rise in soaps and detergent sector is the result of the multinational presence. Mahindra & Mahindra jacked up the tractors sector gain while a possible petro hike pushed up the lubricant sector. The large volume in ITC scaled up the average gain for cigarettes industry to 17.3 per cent while exports prospect hardened the software stocks.
A comparison between May 2 (the day on which the market started southward journey) prices and May 28 prices, reveals that in a falling market B2 stocks are in a major casualty list than A and B1 scrips.
In a 114 point index slide between May 2 and May 28, A group stocks declined by 2.7 per cent, B1 fell by 2.2 per cent and B2 slipped by 5.9 per cent.