THE BENCHMARK Sensex Thursday moved past its previous high of January to close at 36,548, and this time the rally has been powered almost entirely by bluechip large-cap stocks such as TCS and Reliance Industries.
The Sensex had closed at a high of 36,283 on January 29.
As it crossed this mark on Thursday, the BSE mid- and small-cap indices showed a decline of 14 and 18 per cent, respectively, from their all-time highs in January, indicating that the broader market did not participate in the rally.
While Sensex also fell by 10 per cent between January and March, it subsequently managed to recover lost ground.
Experts say part of the reason for the under-performance of mid and small caps is that they had already seen a “strong rally” in 2017 leading up to 2018. “The mid and small caps registered a strong rally over the last couple of years and had entered expensive valuation zone. Now there is a reversion to the mean for these stocks,” Raamdeo Agrawal, chairman of Motilal Oswal AMC, said.
While the Sensex rose 28 per cent in calendar-year 2017, the mid and small cap indices outperformed the benchmark with gains of 47 per cent and 60 per cent, respectively. “Some sectors have been under pressure on account of rising crude oil prices as their finances may be under stress. Even within the Nifty companies, some sectors have done well than others. However, large caps may have done better than mid and small cap companies in that sector,” Pankaj Pandey, head of research at ICICIdirect.com, said.
The bluechip stocks that powered the latest rally include TCS, which gained 23 per cent since January 29, Kotak Mahindra Bank (25 per cent) and RIL (12 per cent), among others. A fund manager with a mutual fund said that with growing global concerns over rising oil prices, investors feel that large cap companies are better positioned to weather such pressures. Several mid and small cap companies are also having credibility issues on account of auditor resignations and debt worries, which have impacted their performance, the fund manager said.
Over the six-month period, several positives emerged on the domestic front, such as stabilisation in GST collections, a pick-up in credit demand and hopes of a normal monsoon. But there were also concerns over the imposition of long-term capital gains tax of 10 per cent on gains from sale of listed equity shares or units of mutual funds, a sharp decline in rupee of around 8 per cent, the NPA crisis, and the rise in brent crude oil prices from $66 per barrel to around $80. Besides, while the RBI decided to raise interest rates last month after a gap of four years, global markets witnessed pressure over geo-political concerns surrounding US relations with North Korea and Iran, and the recent tariff war between US and China.
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