The rise of the Indian stock market since 1 April, the beginning of the current fiscal year, has been more broad-based than for any other period of sustained rise over the past year.
Of the 30 stocks that constitute the Sensex, the Bombay Stock Exchange’s benchmark index, 27 have advanced since 1 April (and through 25 May). Of the 261 stocks in the exchange’s mid-cap index, 225 have advanced and 36 declined. And of the 439 stocks in the exchange’s small-cap index, 347 have advanced and 92 declined. In the same period, the Sensex has moved up 15.44% to 14,338.45 on 25 May.
It closed at 14,397.89 on Monday.
The trend is interesting because it shows a higher proportion of advances to declines compared with any other period of sustained rise in the stock market over the past year. The Sensex itself has risen 34% in the past year (through Friday), moving from 10,666.32 to 14,338.45, but almost half (994) of the top 2,000 stocks on the exchange in terms of market capitalization declined in price in this period. And of the 439 stocks that constitute the BSE small-cap Index, 218 declined and 221 advanced in this period.
Between 1 January and 25 May, the market became narrower as the Sensex rose from 13,942.24 to 14,338.45. Within the 30-share Sensex, 17 declined. And among the top 2,000 stocks on the exchange, 1,157 declined.
The breadth of the market since 1 April can be gauged from the fact that among the top 2,000 stocks on BSE by market capitalization, 1,532 advanced till 25 May, and a mere 468 declined.
Analysts said that with the BSE mid-cap index trading at an estimated price-earning multiple of 14 times compared with around 17 for the Sensex, the valuation of mid-cap stocks has indeed become more attractive. The price-earnings multiple is a measure that takes into account the current market price of a company’s share and its earnings per share, either for a past financial period or a future one.
According to Jaideep Goswami, head of research, UTI Mutual Fund, the benefit of economic growth is spreading across industries. “Earlier, mostly the Sensex stocks were in the limelight but now we are seeing investors’ interest across sectors such as power, pipes, construction equipment... The mid-cap stocks have strong cash flows and they are growing fast.”
The stock that gained the most in the BSE mid-cap index is Educomp Solutions Ltd. It rose 95.39% between 1 April and 25 May from Rs971.65 to Rs1,898.55. The shares of two firms have risen by over 80% in this period: United Breweries (Holdings) Ltd (rose 89.73% from Rs348.05 to Rs660.35) and Balaji Telefilms Ltd (rose 81.9% from Rs122.35 to Rs222.35). The shares of three firms, Welspun Gujarat Stahl Rohren Ltd, SKF India Ltd and Reliance Natural Resources Ltd, rose by more than 60%. And the shares of four firms, ING Vysya Bank Ltd, Bombay Rayon Fashions Ltd, Divis Laboratories Ltd and Moser Baer India Ltd, grew by more than 50%. In the BSE small-cap index, Prakash Industries Ltd was the best performer with its stock rising 96.61% between 1 April and 25 May—from Rs32.45 to Rs63.80.
Several asset management firms have recognized the rise in the prices of small-cap and mid-cap stocks. In recent mo-nths, DSP Merrill Lynch and HDFC Mutual Fund have made new fund offers around schemes focused on small-cap and mid-cap stocks, respectively.
Diversified equity funds are also increasing their exposure to mid-cap stocks, according to fund managers.