Mumbai: Consumption-focused stocks along with financial stocks are the top gainers in the BSE 500 pack year to date, in the recent rally that drove the market to new highs, hinting at expectations of recovery in demand and economic growth, as impact of demonetisation fades.
A Mint analysis showed that among the top 25 gainers in the BSE 500 pack for year to date, until 7 April, nine were consumer discretionary and staples, while six were financial stocks.
These stocks have gained between 56.78% and 119.46%. The top gainer in the pack is Future Retail Ltd, which has more than doubled for year to date till 7 April.
In the same period, BSE’s benchmark 30-share Sensex added 11.56%, while BSE 500 index climbed 15.19%. These indices touched recorded all-time highs on 5 April.
BSE 500 stocks account for around 92.3% of the total market capitalisation on the BSE.
BSE Consumer Durables index, BSE Consumer Discretionary Goods & Services and BSE FMCG index gained 38.14%, 18.64% and nearly 13%, respectively. BSE Finance and BSE Bankex gained 20.30% and 17.71%, respectively.
“The consumption-focused and financial stocks were battered post demonetisation. The outlook for the economy is recovering, in turn fuelling a rally for financials. Domestic consumption demand is seen looking up, which is going well for consumption-themed stocks,” said Rakesh Rawal, chief executive officer of private wealth management at Anand Rathi Financial Services Ltd.
In its monetary policy report on Thursday, the Reserve Bank of India said the GVA (gross value added) growth is projected to strengthen to 7.4 % in 2017-18 from 6.7% in 2016-17, with several favourable domestic factors expected to drive this acceleration.
“First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending. Activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganised segments has largely been restored.”
The central bank also said that significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations.
“The macros are stable, India is on the FIIs’ (foreign institutional investors) favoured list, which is driving the market higher,” said Rawal.
FIIs have pumped in a net of $6.86 billion in Indian shares for year to date, the best such inflows in the Asia-Pacific region.
On the other hand, IT and pharma stocks were among the worst performers in the pack for year to date, as demand environment, outsourcing debate and visa woes hampered growth prospects.
BSE IT and BSE Healthcare indices were the worst performing sectoral indices in the pack. BSE IT is the only sectoral index which has dropped so far this year. It has declined 0.28% for year to date until 7 April. BSE Healthcare index, eked out a 3.31% gain in the same period.
Among the worst 25 performing stocks in the pack, eight were IT stocks, while seven were healthcare stocks. These companies have eroded between 4.94-20.51% since the start of the year.
The worst performing stock in the pack was Divi’s Laboratories Ltd.
“The changing dynamics of the IT industry, in terms of moving from application development and maintenance business to digital business is bothering the IT companies,” said Gaurav Dua, head of research at Sharekhan by BNP Paribas.
“This, coupled with a slowdown in demand, pricing pressure and protectionist policies from (US President Donald) Trump administration are factors leading to a de-rating of the entire sector,” added Dua.
Indian companies have been bothered by persisting regulatory hurdles from the US Food and Drug Administration (USFDA), and pharmaceutical companies are also facing the heat of the pricing pressure in the US.
“The regulatory action due to stringent stance taken by USFDA , along with pricing pressure for generics in US is weighing on the pharmaceutical sector,” said Dua.
The issue gains prominence because of the magnitude of the impact it could have on the revenue of these companies. For most leading pharmaceutical companies, the US market accounts for at least half of their revenues