The Hindu Business Line : Sensex speeds… <br>But stocks set their own pace

The Sensex may have soared in the last year but only a very small proportion of listed stocks are now trading at their year’s highs. This points to how only a handful of stocks are driving the market.

Raghuvir Srinivasan

In a market where the bellwether index has soared by half in just a year and is now at an all-time high, what would you expect?

That a majority of the listed stocks would have gone up in similar fashion and touched their own yearly or all-time highs?

That all the bellwether stocks, considered market favourites, will be trading at their peaks?

That only a few stocks, none of them hot, will be trading at their yearly lows?

If you did think along any of these lines, then you would be wrong. In a market where the Sensex has returned 50 per cent in the last year, only 5 per cent of the listed, actively traded stocks are now trading at their yearly highs.

That would go up to 14 per cent if you include stocks trading within 5 per cent of their yearly highs.

Quite a few market favourites, such as Infosys Technologies, TCS, Hindustan Unilever, ITC and Ranbaxy Labs, are way off their highs.

About 9 per cent of the universe of listed stocks is trading at the yearly low values or within 10 per cent of that; Bajaj Auto and Cipla figure in this list.

These were the broad findings of a Business Line study on price movements in 2349 stocks that are actively traded. We took the entire universe of listed stocks and eliminated those that are either not traded or trading below par val ue.

The objective was to examine how many stocks have floated up to peak levels aided by the Sensex’s buoyancy. The nature of these stocks and their sectors were the obvious sub-themes of the study. Here are the findings:

Only about 5 per cent of the sample is trading at the yearly highs. A large part of this is ultra-small-cap stocks with an average market cap of Rs 61 crore.

There are just five large- and mid-cap stocks trading at their yearly highs and these are National Mineral Development Corporation, Hindustan Copper, Tata Steel, Prism Cement and PTC India.

Stocks constituting about 14 per cent of the sample are trading either at their yearly highs or a shade (5 per cent) under that. The prominent stocks in this list include Reliance Industries, Grasim, Reliance Energy, ABB, Suzlon Energy , Britannia, Asian Paints, Aditya Birla Nuvo, SAIL, Tata Steel and Siemens. A host of bank stocks are also trading at their yearly highs or close to that.

About 8 per cent of the stocks in the sample are trading at all-time highs or within 5 per cent of that level. This includes stocks such as Bharti Airtel, Indian Bank, Reliance Industries, Siemens, L&T, GAIL (Ind ia), NTPC, Tata Power, Gujarat State Petronet, HDFC Bank and IPCL.

Almost 9 per cent of the sample is trading either at yearly lows or just a shade above that; this list mainly includes stocks from the sugar and auto-component industries with a couple from pharmaceuticals.

A little more than half of the stocks trading at their yearly highs or close to that are small cap (market cap of less than Rs 500 crore). Most of these small caps are penny stocks with a market cap of below Rs 100 crore.

A number of these stocks are of loss-making companies. Does this point to something odd about the rally? Market theory is that when loss-making penny stocks join a rally, it is time to hoist the danger flag in the market.

Most new listings cool off after the initial phase of bullishness. Stocks such as Pyramid Saimira, Global Vectra Helicorp, Allcargo Global Logistics, Nelcast, Shringar Cinemas and Nissan Copper(which was the subject of a SEBI probe for price manipulation), are all trading way off their highs.

What the findings mean

The low proportion of stocks at their yearly or all-time highs can be interpreted in two ways.

First, that the market rally is narrow and driven only by select index stocks.

A 50 per cent rise in the Sensex since last July does not mean that a good number of stocks have delivered similar gains.

This has traditionally been the case with the Indian market.

The rally a year ago that took the Sensex from the depths of below 9,000 to over 12,000 in three months between July and September 2006 was also a narrow-based one with several important stocks not participating in it.

The second interpretation is that the market is becoming more discerning and is treating stocks strictly on their growth prospects.

This interpretation gains credence when you consider that in some sectors, notably banks, some stocks are trading at their highs while others are way off that mark.

This interpretation, however, falls by the wayside when you see that a number of penny and small cap stocks are making merry in the general euphoria.

Those of you who missed the bus in the last one year need not despair. There are still stocks that can be picked up at reasonable prices in what appears to be an over-valued market.

You would have to choose your sectors carefully and within them, stocks that are fundamentally sound but are now lagging due to larger industry-related issues.

Apart from the well-known examples of this such as Infosys, Hindustan Unilever and ITC, there are less obvious ones such as Sundram Fasteners in auto components, Bharat Petroleum and Hindustan Petroleum in oil refining, Ambuja Cement (formerly Gujarat Ambuja) and Ultra Tech Cement in cement and Abbott India and Pfizer in pharma.

Mid-cap stocks may be staging a comeback but they are still not the favourites that they were two years ago.

The market appears to have certainly become more discerning in the mid-cap space marking up those with genuine good prospects.

It is interesting to see mid-caps such as Jagran Prakashan, Gujarat State Petronet, PTC India, CESC and Amara Raja Batteries rub shoulders with their larger brethren and gaining in tune with the market.

This is even as others such as Novartis India, Bongaigaon Refinery, Sundram Fasteners, Sundaram Clayton and a host of sugar and textile stocks have been knocked off their pedestal and are trailing their yearly highs.

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