Nifty, Sensex disparity flips in first three months of 2013

n Higher allocation to IT and oil & gas sectors aids Sensex

After consistently outperforming the Sensex in most of 2012 by a premium of more than 1.5%, the broader Nifty has lagged the 30-share index in year to date returns during the first quarter of 2013.

On average, the year to date return of Nifty trailed that of the Sensex by 0.5%; as of Tuesday, the Nifty lost 3.9% while the Sensex retreated 3.2% in 2013 so far. The primary reason for the flip in disparity could be the higher number of stocks that constitute the Nifty, which result into wider representation from the Cement, auto and infra space which have lead the market decline in the last two months.

All together, the 20 shares that form Nifty but are not present in the Sensex accounted for 72 points or more than 40% of the Nifty?s year to date decline as of Monday.

For example, the cement sector which is represented by ACC, Ambuja Cement and Unitech in the Nifty but does not contribute to the Sensex has accounted for close to 10% decline in the Nifty during the period.

Similarly, six of the power, infra and construction stocks that are present only in Nifty, including BHEL and Siemens, took away 41 points from the Nifty during the period. In the recent past, Siemens and Wipro have been replaced by IndusInd bank and NMDC in the Nifty.

With the inclusion of IndusInd, there are as many as nine stocks from the banking and financial space in the Nifty accounting for more than 28% of the index compared with four in the Sensex that constitute 26%. Despite such higher share of financial stocks, the sector has not weighed on Nifty?s returns as much as on that of Sensex due to individual weights assigned to sector leaders like ICICI bank and HDFC bank that have lead the market fall in the period. Both these banks enjoy a higher weight of about 0.9% in the Sensex than Nifty.

What has helped the Sensex in is the higher weightage of IT stocks that have outperformed the market significantly in addition to superior allocation oil & gas heavy weights like ONGC and RIL compared to the Nifty. While IT sector constitute 14.5% of the Nifty, it accounts for close to 16.3% of the Sensex.

Even higher weights attached to some of the leading bluechip gainers, including ITC, Sun Pharma and Wipro, aided the Sensex. They tolerated as much as 60% of the decline in the Sensex compared to 30% for the Nifty.

If the momentum of these benchmarks sustains in this fashion, the Sensex may manage to outdo the Nifty in the year to date gains for the first time in four years.