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Awaiting broader market recovery? You are in for a surprise! Here’s why

The BSE500 index forms over 95 per cent of BSE’s total market capitalisation.

, ETMarkets.com|
Updated: Nov 19, 2019, 11.58 AM IST
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In last 7-10 days, the broader market has performed well after this huge underperformance and there are good reasons for them to perform better in the short term, said Vaibhav Sanghavi of Avendus Capital.
NEW DELHI: The recent recovery in domestic equities may not sustain unless there are clear signs of an economic recovery.

Data showed the BSE500 index has gained just 5.5 per cent year-to-date (YTD) against Sensex's 12 per cent return during the same period. But in the last three months, it climbed 7.6 per cent, which is in line with Sensex's 7.7 per cent return.

In last couple of days, the broader market has performed well after this huge underperformance and there are good reasons for it to perform better in the short term, said Vaibhav Sanghavi of Avendus Capital.

“Having said that, our broader thesis remains that the stronger guys are going to get even stronger and we would probably stick to the largecaps unless we see a broader economic growth. A GDP print of above 5-5.5 per cent does not give us any confidence to invest in the broader market. There can, of course, be a short-term rebound, but we will stick to quality largecaps, which are pretty much consistent out there,” Sanghvi told ETNOW in an interview.

In case of the BSE500 basket, six out of every 10 top 100 stocks (by market value) have delivered positive returns so far this calendar against five out of 10 stocks that ranked 101-200 in terms of market value.

Table

Among the rest 300 stocks (201-500) by market value, just three of 10 have delivered positive returns this year. They included 34 stocks that have eroded over half of their market value.

They included DHFL (down 91 per cent), Coffee Day Enterprises (down 83 per cent), Jain Irrigation Systems (down 81 per cent), Lakshmi Vilas Bank (down 78 per cent), SREI Infra (down 75 per cent), HEG (down 72 per cent), Eveready Industries (down 72 per cent)and IIFL Finance (down 69 per cent), data compiled by corporate database AceEquity suggests.

The BSE500 index forms over 95 per cent of BSE’s total market capitalisation.

Gurmeet Chadha of Complete Circle Consultants believes investors should go where there is earnings visibility. “I am not a great believer that one should start picking up beaten-down names because the divergence will take some time. And about this theory of quality being very expensive and selling quality and getting into cheaper names, I think one has to tread with caution. You should go where the earnings visibility is," Chadha told ETNOW.

The top 100 companies by market value in the BSE500 index received 84 per cent of all inflows between June 2018 and June 2019. In that too, 77 per cent flows went to the top 50 firms, data by Sunil Singhania-led Abakkus showed. Companies that ranked 200-300 got 3 per cent of the top inflows, while the ones that fall in the 300-400 bracket got just 1 per cent. Those ranked between 400 and 500 by market value, in fact, saw outflows.

In case of FPIs too, 88 per cent of inflows in the one year to June went to the top 100 stocks. Stocks that ranked 200 to 500 in terms of market value witnessed meagre foreign inflows. That was not the case before.

“The rich valuation of the Indian market is at odds with the weak state of the economy, and so is the large price-value gap being seen in both ‘growth’ and ‘value’ stocks. The market and ‘quality’ part of the market are largely factoring in a reasonable recovery in the economy and earnings,” Kotak Institutional Equities said in a note.
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