The Nifty index is up 4 per cent so far this year but investor sentiment suggests a bear market going forward, according to a UBS research note. According to the global brokerage firm majority of Nifty constituent stocks are down and 40 per cent of them are down more than 10 per cent in 2018. Moreover, of all listed stocks, 60 per cent are down at least 20 per cent so far this year. “We reiterate our view of unattractive risk-reward for the Nifty and are underweight on SMIDs (small and mid-cap),” the report authored by UBS Securities India analysts Gautam Chhaochharia and Sanjena Dadawala said.
Regarding the outperformance of top-10 Nifty stocks by market cap, which have jumped nearly 20 per cent in 2018, the report said “this is not new and the top-10 have outperformed the Nifty over the longer term too. Such outperformance historically has been seen prominently during periods of currency weakness”. Meanwhile, small and mid-cap indices are down 16-23 per cent in 2018. According to UBS, the divergence in performance of top 10 Nifty stocks and small and mid-cap stocks is nothing new.
“Our analysis suggests similar trends historically in periods of sharp currency depreciation”, the report noted. The rupee has been among the worst-performing currencies against the dollar compared with peers in CY18 to date and breached the 69-mark against the US dollar amid multiple headwinds, including global uncertainties and concerns over inflation. The rupee is currently hovering around 68.33 per dollar. UBS Economist Tanvee Gupta Jain expects the INR to remain in a range of 68-72 against the USD.