The Hindu Business Line : Rally with participation across-the-board

WITHIN a minute of the market opening on Friday, the Nifty crossed a landmark. The Nifty breached the previous all-time high of 1818.15 that it touched during intra-day trade at the height of the tech bull run on February 23, 2000. It closed at 1837.05.

Notably, the Sensex is still 450 points adrift of its 2000 high of 6150.69 points.

The effect of numerous changes to the constituents of the Nifty and the Sensex and their timing, and the spurt in gains posted by the additional 20 stocks in the Nifty explain this significant divergence.

The underlying theme in the ongoing bullish phase is considerably different. Sectors and stocks that were marginal to the 2000 bullish phase are now at the forefront.

The Nifty portfolio now sports a more diversified look. In contrast, the uptrend in 2000 was concentrated on a couple of sectors, notably information technology.

Stocks belonging to the information technology (IT) and the telecom sector, the toast of the rally in 2000, which commanded a weight of close to 30 per cent in the market capitalisation of the Nifty then, have a more modest presence now. Despite the subsequent addition of Wipro, IT and telecom stocks now account for just 18 per cent.

Stocks of consumer product companies, which include the likes of Hindustan Lever, ITC and Nestle, to name a few, is another category that has seen its influence wane significantly. The decline in the dominance of this sector is best captured by the modest clout that the FMCG behemoth, Hindustan Lever, has on index movements. Its weight in the index has slipped by 10 percentage points over the past three-and-half years to 7.2 per cent now.

Sectors such as oil and gas, financial services and commodities command a higher weight and have played no mean role in catapulting the Nifty to a new high. The oil and gas sector, which has caught investor fancy, now commands a weight of about 20 per cent. This is in spite of stocks such as ONGC and Indian Oil not being part of the Nifty. Should they be included in the index at a later date, oil and gas sector will play an important role in dictating index movements.

ONGC would then become the stock that wields the biggest influence on the Nifty, as its market cap is already in excess of Rs 1,00,000 crore. This is one-and half times that of Reliance, which is at the top of the heap in the Nifty now.

The strong showing by the banking sector, coupled with the resurgence seen in the demand for commodities such as iron and steel and chemicals has resulted in these two sectors attracting investor fancy in a big way, and contributing to the new high.

The sharp run-up in the index notwithstanding, the Nifty still trades at a price-earnings multiple that is at a good 25 per cent lower to the levels that prevailed in February 2000. What's more, the dividend yield, too, is better on a comparative basis.

It probably is a reflection of how the current rally has been of more secular order with a much wider participation across sectors, and also backed up by healthy earnings numbers for a swathe of large-cap stocks.

In contrast, in the bull market that hit a high in February 2000, it was only the tech stocks that sported impressive earnings growth.

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