The Hindu Business Line : The story from 12K to 12K...

Four months after it fell off the mark and five months after it first touched it, the Sensex is back at 12,000. Time to rejoice that all's well with the world? Not really, if you take a close look at the underpinnings of the rally that has taken the index back to stratospheric levels. The present rally appears to be selective in terms of the participating stocks, and the market has turned discriminating in the mid- and small-cap spaces. There has been a virtual shake-out among the mid-caps that were in the vanguard of the last rally till May. Ditto for the small-cap stocks, where, again, the participation has been minimal in this rally.

A number of large-cap and emerging large-cap stocks, including some marquees, are now valued lower than the first time the Sensex closed above 12,000, on April 20. Significantly, three out of every four stocks traded in the market are yet to catch up with their values of April 20.

So, what's driving the market then? The present rally seems to be driven largely by select stocks from such sectors as banking, information technology, tyres and auto/auto components. This is the most significant finding of an analysis by Business Line of stock prices between April 20 and Friday, September 15.

Narrow rally

That the rally is not broad-based is borne out by the following:

About 75 per cent of all traded stocks are yet to regain the values they recorded on April 20. In absolute numbers, 1,664 of the 2,244 stocks that constituted the sample for this analysis are trading at values that are lower by 2-72 per cent compared to April 20. And 930 of these, or 41 per cent of all traded stocks, are priced over 20 per cent lower than their April 20 values.

Six out of every ten large-cap stocks are now trading at values lower by 2-37 per cent compared to their prices when the Sensex first closed above 12,000. Every third stock in this category has dropped by more than 10 per cent in this period. These are largely from sectors such as metals, FMCG and oil.

Some prominent stocks that are trading lower include Tata Motors (9 per cent), Hero Honda (11 per cent), ONGC (14 per cent), Nestle (13 per cent), Hindustan Lever (12 per cent), Ranbaxy (12 per cent) and Nalco (37 per cent). Large-caps have been defined as those with market capitalisation exceeding Rs 5,000 crore, which is a sample of 94 stocks.

Three out of every four emerging large-caps are trading at values that are lower by 10-51 per cent compared to April 20. These are largely from sectors such as pharmaceuticals, FMCG, oil, construction and sugar and include Lupin (14 per cent), Castrol (6 per cent), Pfizer (16 per cent), Biocon (19 per cent), Punj Lloyd (17 per cent), Nagarjuna Construction (18 per cent), Bajaj Hindustan (39 per cent) and Balrampur Chini (51 per cent). Emerging large-caps have been defined as those with market capitalisation between Rs 2,000 crore and Rs 5,000 crore, which is a sample of 101 stocks.

The big story is the shakeout in the mid-cap space, where three out of every four stocks have failed to regain the values of April 20 and are quoting lower by 2-60 per cent. Mid-caps have been defined as stocks with a market capitalisation of Rs 500-2,000 crore — a sample of 275 stocks in the analysis.

Of these, 160 (roughly one out of every two) are trading at values lower by over 10 per cent than their April 20 close and include Punjab Tractors, Ballarpur Industries, Indraprastha Gas, Mastek, Eveready and Bata. Clearly, the market is now more discriminating in the choice of mid-cap stocks.

No other stock tells the story better than Gateway Distriparks, which is down 34 per cent since April 20 and trades even lower than the closing price of June 14, when the Sensex touched its low of 8,900 points.

In the small-cap space, again, three out of four stocks are trading at levels far lower than the first time the Sensex touched 12,000. Of the 491 small-cap stocks forming part of the sample, 372 are trading lower by 2-72 per cent. And 323 of them, or about 65 per cent of the sample of small-cap stocks, are now trading at values that are lower by more than 10 per cent compared to April 20. Some of the well-known small-caps to suffer include Savitha Chemicals, GVK Power, Ciba Specialty, Maharashtra Scooters and Timex.

Pharma, FMCG lose, banking gains

Banking stocks are stars of the latest rally, with some, such as Bank of India and Karur Vysya, gaining more than 20 per cent over their April 20 values. Bank of Baroda, ICICI Bank and SBI have also posted significant appreciation.

The bull-run in these stocks appears to be driven by two factors — one, the discreet push to consolidation in the industry from the Government and the RBI, and, two, the clearer picture on interest rates. Banking stocks had declined earlier on fears of impending rate hikes and consequent loss of treasury incomes.

Auto component and tyre stocks have been the other major groups to gain, with Ceat, Kesoram, Apollo Tyres and TVS Srichakra posting handsome gains compared to their April 20 values.

The rally in auto components has been selective, with Sona Koyo, Subros and MICO being the major beneficiaries.

The biggest losers of the last four months are sugar stocks, which have been beaten down mercilessly. EID Parry, Bannari Amman, Dhampur Sugar, Balrampur Chini and Shree Renuka Sugars have all lost heavily.

The bearish outlook for metal prices has meant that important stocks such as Tata Steel, SAIL, Hindalco and Nalco are trading at prices well below the level when the Sensex last touched 12,000.

Among oil stocks, ONGC has yet to catch up with the heady valuations of four months ago despite the sustained rise in crude oil prices. This could be because higher crude prices also mean a disproportionately higher share of the subsidy burden on the company. Refining companies such as BPCL and HPCL, despite the rise of the last two weeks, are still way below their values of April 20 while Indian Oil has regained the price level touched in the last rally.

Interesting sidelights

1,958 stocks, or 87 per cent of the sample of 2,244 stocks, are trading below their prices of May 10 when the Sensex closed at its life-time high. More than 900 of these stocks are lower by 20-80 per cent.

48 stocks are at around the same price as on May 10 and these include Maruti, NTPC, TCS and Bank of India.

233 stocks are trading at prices higher than what they were on May 10 and these include IPCL, Infosys, Zee Telefilms, EIH, Satyam, Grasim, HDFC Bank,Punjab National Bank and Divi's Labs.

303 stocks, or about 14 per cent of the sample, are trading at prices lower than on June 14 when the Sensex closed at a low of 8,900 points. Sugar stocks such as Dhampur Sugars, Thiru Arooran, EID Parry and Sakthi Sugars are the stars of this apart from Force Motors and Britannia, to name just a few.

Graphics by S. Kannan

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