Mumbai: The breadth of the Indian stock market is increasing, with more stocks participating in the bull run even as the Bombay Stock Exchange’s (BSE) benchmark index, Sensex , reached a new high on Thursday and crossed the 15,500 mark. Market analysts and brokerages say higher retail participation is increasing the breadth of the market.
In keeping with this trend, small-cap and mid-cap stocks have started rising; until recently the rally was centred around the frontline stocks.
A Mint analysis of stock movements shows that out of the 3,650 listed firms, 3,066 stocks have generated positive returns since the beginning of the fiscal year. This shows marked improvement over last year’s performance when only 2,222 stocks had generated positive returns for their shareholders. In the first four months of fiscal 2008, 84% of the listed firms have increased shareholders’ value against 62.4% in 2006-07.
Looking at the other side of the same story, in 2006-07, investors made losses in 1,337 stocks; this year the number of losing counters has gone down sharply to 584—a clear reversal from last year’s trend.
Ramesh Damani, a television commentator on Indian capital markets, says liquidity has helped in increasing the breadth of the market. “Most of the mid-cap and small-cap companies are fundamentally strong. The corporate results are good except in few sectors. More importantly, the participation and impact of retail investors in the market has increased,” he says.
Lalit Thakkar, director of research at Angel Broking Ltd, a Mumbai-based retail brokerage, says there is a strong momentum in mid-cap and small-cap counters. “The market breadth during this rally is significantly higher than the previous rally in February 2007, where just five to six frontline stocks had lifted the Sensex. Among 1,000-odd mid-cap and small-cap stocks, only about 100 stocks are able to attract institutional money. The remaining stocks are attracting the retail investors, who are playing with the bullishness in the market,” Thakkar adds.
The Sensex vaulted 249 points, or 1.6%, to reach a new high of 15,550.13 at the end of Thursday’s trading session. The broader Nifty index of the National Stock Exchange gained 62.55 points to close at 4,562.10. Tata Motors Ltd and Bajaj Auto Ltd saw the biggest spurt, followed by Reliance Industries Ltd.
Among the 30 stocks that constitute the Sensex, only four ended the day with losses. “The market has taken cues from the first-quarter results of Larsen & Toubro Ltd and Ranbaxy Laboratories Ltd, both of which beat market expectations,” says Thakkar.
Analysts say that the momentum will continue and the benchmark index may cross the 16,000 mark, with the market breadth getting broader every day. “The Sensex at current levels is still not expensive,” says Prateek Agarwal, head of equity at ABN Amro Asset Management Ltd. “It is trading at about 18-19 times the estimated earnings for this financial year. There have been significantly longer periods in the past when the market was trading well above these levels,” he says.
According to Agarwal, the increase in the market breadth is a positive factor. “Particularly, the mid-cap stocks have made a strong comeback. The returns from mid-cap stocks are as much as from the large-caps. The broader market rally also indicates increasing retail participation.” Agarwal, however, has a word of caution for the retail investors: “There is risk in buying small-cap stocks if the investment is not an informed decision.”
Ashwin Ramarathinam contributed to this story.