The Nifty 50 has taken 144 trading sessions or exact seven months to hit 11,600-mark on August 23 from first 11,000 in January 23, 2018.
2018 has been a roller coaster ride for the market. After the correction seen in February and March, everyone was taken by surprise when Nifty 50 again retested 11,000 in July. The index has jumped more than 600 points to cross 11,600-mark in the recent rally.
It had hit 11,000 for the first time on January 23, 2018.
The last record high was 11,171 on Janauary 29 followed by sharp correction till March 23 which dragged the index to 9,998.05 on closing basis. The index started recovery from last week of March but that was gradual with consolidation. The actual pace of growth increased in July and is still continuing in August.
The up move in the market has been seen despite the headwinds like US-China trade war tensions, currency war driven by Turkish lira, higher current account deficit (CAD) led by rising crude oil prices.
The drivers that are helping Sensex and Nifty hit record highs are in-line or better-than-expected Q1FY19 earnings, mormal monsoons, stabilisation after demonetisation, easing out of worries around distribution issues and GST and increase in MSP (minimum Support prices).
The government's winning of no confidence motion in the Parliament also boosted the sentiment.
Experts say the rally may continue with intermittent correction, which is part of bull run, going forward.
We have a positive view on the markets due to strong upsurge in rural demand and benefits of GST. BJP's performance in state elections will be a major determinant given anti-incumbency factor and repeated attempts of opposition to cobble up a working alliance.
The rally in the past month or so has been driven by select stocks and has not been broad-based. This is worrisome because sectors like metals, pharma, PSU oil & gas, auto, select infra and major banks did not participate.
Prabhudas Lilladher said the markets are ignoring emerging headwinds like 1) Likely increase in inflation led by higher MSP 2) cautious RBI stance on inflation by 25 bps increase in repo rates 3) escalation of trade wars between US and China and 4) impact on CAD/ currency led by rising crude (imports up 51 percent YTD).
Top 10 counters that contributed to the index rally were Reliance Industries, Hindustan Unilever, TCS, Bajaj Finance, Bajaj Finserv, M&M, Tech Mahindra, Asian Paints, Infosys and Kotak Mahindra Bank, which rallied 16-69 percent in the last seven months.
Among these stocks, Bajaj Finance, TCS and Reliance Industries hit their fresh intraday record high on August 23.
The major reason behind rally in above stocks was June quarter earnings which were more or less in-line or better-than-expected and also guidance for future earnings growth.
Benchmark index companies (ex-banking space) reported stellar operational performance in Q1FY19 primarily driven by robust consumer demand and low base due to transition period before GST implementation (Q1FY18). With worst behind us in the banking space, pick up in industrial activity and upbeat farm sentiment, we are eyeing over 20 percent earnings growth over FY18-20E.
Top 10 stocks which did not participate in seven-month bull run were Tata Motors, Vedanta, HPCL, BPCL, Bharti Airtel, Tata Steel, IOC, UPL, Bajaj Auto and ONGC which shed 39-17 percent.
On closing basis of both days (January 23-August 23), the Nifty 50 rallied 4.5 percent and from 11,000-11,600 levels, the upside was 5.5 percent, but overall the same performance was not seen in other indices viz Nifty 500 (flat during Jan 23-Aug 23), Nifty Midcap (down 10 percent) and Nifty Smallcap (down 19.5 percent) indices.
On earnings front, Nifty50 companies reported sales growth of 23 percent, adjusted profit growth of 11.5 percent and EBITDA growth of 20 percent margin contracted by 43 basis points in Q1FY19 YoY, but Nifty Midcap companies' performance was completely different. Sales growth was 5 percent, adjusted profit growth of nearly 25 percent, EBITDA 9.5 percent and margin expansion of 60 basis points.
In the period of seven months, only 25 percent companies out of Nifty 500 gained the momentum while the rest was in the red. Of 25 percent stocks, top 10 stocks which participated in the rally were Indiabulls Ventures, Merck, NIIT Technologies, Bajaj Finance, Firstsource Solutions, Larsen & Toubro Infotech, VIP Industries, L&T Technology Services, Page Industries and Mphasis gained 53-183 percent.
Undervaluation after correction in February & March, and stable to strong earnings growth caused upmove in above stocks.
Major losers among Nifty 500 stocks were Jaiprakash Power Ventures, Hindustan Construction Company, Jet Airways (India), Reliance Naval, Manpasand Beverages, Kwality, Bombay Rayon Fashions, JBF Industries, PC Jeweller and Vakrangee, which corrected 91-61 percent.
Most of these stocks corrected because of corporate governance and weak earnings performance.
In the Nifty Midcap index, about 70 stocks out of 100 gave negative returns during seven-month period which include Suzlon Energy, Bank of India, NBCC, Indiabulls Real Estate, Union Bank etc.
The top 10 biggest gainers apart from Indiabulls Ventures (183 percent upside) were Page Industries, Mphasis, Bata India, Hexaware, Mindtree, Exide, Berger Paints, Jubilant Foodworks and United Breweries which gained between 25 percent and 57 percent, largely driven by earnings and underperformance.
The Smallcap was the second worst performer among all NSE indices (except VIX) because of correction in 80 percent of stocks which include SREI Infrastructure, Rain Industries, Syndicate Bank, Sintex Plastics etc.
Biggest gainers among smallcaps were NIIT Technologies, VIP Industries, Infibeam Avenues, HEG, Tata Elxsi, Graphite India, Bombay Burmah Trading Corporation, Kaveri Seed Company, Lakshmi Machine Works and Cyient which gained 10-73 percent.
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