Comment: Nifty’s grown-up act a shade different from 2 years ago

Unlike the attempt in 2014 which was a hope rally based on expectations of a fast recovery in the economy post Narendra Modi’s landslide victory, this time around there has been a change in the stocks that have led the charge in Nifty’s historical high. Before we continue to compare the journey of the peaks it is important to note that the stocks constituting Nifty in 2014 are different than those now. There are ten new entrants in the index.stocks

Apart from the new set of companies, there have been some changes among the top order in Nifty.

While TCS continues to be the biggest company in Nifty, its market capitalisation has come down over the last two years. Slowdown in the IT sector coupled with uncertainties post US President Donald Trump’s victory has impacted market performance of the country’s largest company by market capitalisation.

The star performer in the current run-up is Reliance Industries which has seen a sharp rise over the last one year, after it came out with crowd-pleasing tariffs. The stock has run up nearly 45 percent over the last two years.

The second largest contributor is HDFC Bank that has increased by 33 percent in value. Investors have rewarded the bank for having come out unscathed from the asset quality crisis plaguing the banking sector.

In percentage terms BPCL, Tata Steel, Maruti, Zee and Hindalco have all risen by over 30 percent over the past two years.

Among the stocks that have continued to remain in Nifty, BHEL has seen the biggest fall. The stock has seen a sharp 87 percent drop in its market capitalisation. Among the other losers are banking and pharmaceutical stocks.

Gainers and losers in Nifty reflect the ground reality in the Indian economy. Pharmaceutical and IT stocks have pulled the index down on account of issues related to US regulatory problems and a changing IT landscape. On the other hand Reliance’s aggressive launch of its telecom services has shaken the sector into a consolidation mode. The market embraced the stock after it issued a clarity on its pricing policy.

Auto stocks, both in the two-wheeler and four-wheeler space, have done well thanks to a pay revision for government employees. Further, a gain in commodity stocks reflects the move in commodity prices in global exchanges. Also, the purple patch seen by public sector oil companies highlights the easing of pressure on low oil prices and a supportive government policy for subsidies.

Nifty rode the popularity wave of the newly elected Narendra Modi two years ago when general elections gave him a thumping majority. That rally was fueled on hope and well ahead of fundamentals where most of the stocks participated.

It has taken over two years for fundamentals to catch up. However, even in the current attempt to clear the previous high analysts fear that valuations do not justify current prices. But markets have always discounted the future and probably it is presently taking in its stride a stable policy regime for a longer time. Further, this time around the stocks that are supporting the rally are based on strong underlying fundamentals.