ET Intelligence Group: Much like the proverbial frog that fails to notice the slow increase in the temperature of water in the vessel, investors too, seem to have missed out on the broader weakness in the market.
This is because investors and traders often take cues from the movements of benchmark indices, Nifty 50 and S&P BSE Sensex, to pick the wider trend. However, the ET Intelligence Group’s analysis of the gains and losses of stocks outside the indices reveals that these indices do not effectively reflect the true character of the broader markets.
Though the Nifty 50 has gained 7.2 per cent in 2018 so far, more than 80 per cent stocks in a sample of 1,500 companies with market capitalisation of more than Rs 50 crore have failed to earn returns. That is, for every two stocks that went up, eight went down or advance-to-decline (A-D) ratio of 2:8.
In the BSE 200 and the BSE 500 indices, which include more frequently traded companies, the A-D ratio is 4:6 and 3:7 respectively. The BSE mid-cap and small-cap indices have lost 10.2 per cent and 14.3 per cent respectively so far in 2018.
A similar trend was witnessed in 2015 as well. That year, Nifty had reported a drop, but several stocks were hitting lifetime highs. Two out of every three stocks (in the sample of 1500 stocks as well as the BSE 500 index) were in the green despite Nifty’s loss of over 5 per cent in the calendar year and 14 per cent fall from the year’s peak. The BSE mid-cap and small-cap indices gained 7 per cent and 8 per cent respectively.
The recent rally is largely driven by higher fund flow or liquidity finding its way into select stocks. However, adverse economic factors such as rising fuel costs, hardening interest rates, weakening rupee and global trade war put the market in a vulnerable spot.