A few stocks drive Nifty rally, contributing over 50 % of the rise

A few stocks drive Nifty rally, contributing over 50 % of the rise

The equity indices might have hit new milestones on Friday by recording fresh closing highs, but the rally has been led by only a few stocks that contributed to more than 50% of the rise.

The 50-share Nifty, which fell 70.55 points, or 0.37%, to 18,755.45 on Monday, had closed at a record 18,826 points on Friday. Year-to-date, the broader index has returned 3.59%.

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The index has delivered a return of 10.68% since its March low, having risen more than 1,800 points. Interestingly, 920 points have been driven by nine stocks. The top four contributors in terms of points are Reliance Industries (269.15 points), ITC (166 points), ICICI Bank (112.13) and Bajaj Finance (105.74 points).

IT giant Infosys, with 5.79% weight in the Nifty, has traded in the red, dragging the index by 54 points during the same time period. Tech Mahindra and UPL are the other two negative contributors, down 1.21% and 1.30% respectively.

According to market experts, the narrow rally in the Nifty could be attributed majorly to huge FII inflows into the index heavyweights within a short span.

“While the Nifty is near its all-time high, stocks beyond the Nifty50 have not had a chance to participate in a similar manner. This rally has been driven more by institutional investors; retail participation has been low. FIIs have returned, but have mostly been buyers in heavyweights, in an attempt to normalise their India weightage,” said Parkash Diwan, independent market researcher.

He pointed out that this has been a liquidity-based rally, not one owing to a re-rating of fundamentals. It is a case of more liquidity chasing a few stocks.

“This rally has predominantly taken place on account of FPIs flows into select stocks like the Bajaj twins and RIL. At the same time, the IT sector has not attracted flows as much owing to the global macro factors. FPIs do not put a lot of money in midcaps or smallcaps given the lack of liquidity,” said Parthiv Shah, director, Tracom Stock Broker. While stocks like ABB and Siemens have done well, their contribution doesn’t count for much as they do not hold a bigger weight in the index. Only select stocks with a higher weight drive the index movement, he added.

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FPIs continue to be buyers in financials, automobiles and auto components, capital goods and construction-related stocks. They are sellers in IT, metals, power and textiles, according to analysts.

“Thanks to the index being near a new record and valuations being rich ― the Nifty is trading at 20x its FY24 earnings ― profit booking could be expected in the near-term,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.