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Business News/ Markets / Stock Markets/  Bank vs IT stocks: How these two Nifty heavyweights have fared in past 10 years
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Bank vs IT stocks: How these two Nifty heavyweights have fared in past 10 years

Take a look at the roles of these two big and critical domestic sectors – Banks and Information Technology (IT) – in relative alpha generation over the last decade

While the weightage of banks in Nifty-50 rose 820 basis points to 38 per cent between CY12-22, the weightage of IT jumped 260 basis points to 14 per cent during the same period.Premium
While the weightage of banks in Nifty-50 rose 820 basis points to 38 per cent between CY12-22, the weightage of IT jumped 260 basis points to 14 per cent during the same period.

Heavyweight sectors banking and IT together constitute 41 per cent of Nifty50 and 31 per cent of NSE-500 weights to date. Over the past decade (between 2012 and 2022), while both Nifty Bank and Nifty IT outperformed Nifty-50, their performances remained highly volatile and divergent, said domestic brokerage firm Motilal Oswal.

If one were to go by what the brokerage said in its research report, this divergence in returns is expected to continue moving forward.

The brokerage also highlights how the relative divergence between these two sectors – banks and IT – has played an important role in determining the relative out/underperformance of the Indian stock market.

Analysing the yearly performances of key sectoral indices over the last 10 years, Motilal Oswal said that Nifty-50 with other key indices posted a healthy double-digit growth during CY12-22.

"Nifty-50 reported 12 per cent CAGR, while the other top performing indices, i.e., Nifty Bank and Nifty IT clocked 13 per cent and 17 per cent CAGR, respectively," the note stated.

While the weightage of banks in Nifty-50 rose 820 basis points to 38 per cent between CY12-22, the weightage of IT jumped 260 basis points to 14 per cent during the same period.

Further, the market cap contributions of Nifty Bank and Nifty IT constituents in Nifty-500 were higher by 40 basis points and 60 basis points to 12.0 per cent and 10.3 per cent, respectively during CY12-22.

Divergence in returns

The Nifty Bank and Nifty IT indices have exhibited a stark divergence in yearly returns, with these two indices outperforming alternately over 2012-2022.

More importantly, the quantum of relative performance gap between the two sectors was over 40 per cent in six out of the 11 years and more than 10 per cent in 10 out of 11 years.

The gap has expanded sharply in years of macro disruption, which has become quite frequent of late (demonetisation, GST, US-China trade-war, Covid19, Russia-Ukraine war, Global Central Bank rate hike cycle, accidents in global banking).

"In fact, in the preceding three years, i.e. CY20, CY21 and CY22, the relative returns gap between Bank & IT stood at a staggering 58 per cent, 46 per cent and 47 per cent, respectively, with IT outperforming in CY20 and CY21 while Bank outperforming in CY22. IT is so far (CY23YTD) outperforming Bank by 6 per cent," the note said.

Further, the average divergence between both indices stood at 37 per cent over 2012-2022, highlighting the obvious but critical role of sector selection in alpha creation, the brokerage said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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ABOUT THE AUTHOR
Meghna Sen
Business journalist tracking markets, companies, economy and crypto for Livemint. She has 6 years of experience with online and print publications. Email: meghnasen08@gmail.com
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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Published: 29 Mar 2023, 09:05 AM IST
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