Sensex’s reaching the 40k-mark in early June may suggest market is in good health, but reality is quite different; mid-caps and small caps are faring poorly.
The number of stocks with a market capitalisation of Rs 1,000 crore or more slipped to 719 on Monday, very close to the level of 715 companies in the March 2017 quarter. This reflects the deteriorating performance of the broader market, masked by the surge in the indices.
At the end of December 2017, 853 companies commanded a market capitalisation of Rs 1,000 crore or more, data sourced from Bloomberg showed. However, with corporate earnings turning out to be very disappointing in the last two years, several stocks have lost value.
Indeed, the benchmark indices remain supported by the rise of just a handful of stocks. The Sensex’s reaching the 40,000-mark at the beginning of the month may suggest the market is in good health but the reality is quite different because both mid-caps and small caps are faring poorly. The Nifty MidCap Index has given up about 7% since the last one year, and 62% of its constituents have lost value. The Nifty Small Cap Index has shed 17.6% during the same period, and 73% of its members have seen a fall in prices.
Interestingly, foreign portfolio investors (FPIs) who have been buyers for the most part of 2019, turned sellers in June. Overseas investors have offloaded shares worth $131.3 million so far this month and have been sellers in eight out of the 15 sessions. However, on Monday, FPIs bought shares worth $29.9 million, provisional data on the stock exchanges showed, taking their year-to-date purchases to $11.05 billion. This compares with the domestic institutional investors’ (DIIs) selling $1.23 billion worth of stocks so far this year.
While the combined market capitalisation of listed companies on the BSE increased by 2.7 lakh crore to Rs 150.2 lakh crore over the last one year, the market value of the top three firms — Tata Consultancy Services (TCS), Reliance Industries and HDFC Bank — rose by `4.4 lakh crore during the same period.
The Sensex slid for second session on Monday, paring 71.53 points or 0.18% to close at 39,122.96 points whereas the broader Nifty shed 24.45 points or 0.21% to end the day at 11,699.65.
India remains one of the most expensive markets in the world. At its close of 39,122.96 on Monday, the Sensex now trades at a price-earnings (P/E) multiple of 18.5 times to the estimated one-year forward earnings, against the long-term average PE of 16.8 times. This compares with 11.4 times for Kospi and 14.7 for Jakarta Composite. Russian and Turkish equities were the cheapest in the emerging market with a forward price-to-earnings ratio of 5.9 and 5.7, Bloomberg data showed.
Historically, Indian equities have traded at an average P/E premium of 26% to the Asia pacific region, excluding Japan.
Thirteen of 19 sector indices compiled by BSE declined on Monday, led by BSE Oil & Gas, down by 1.6%. It was followed by BSE Metal and BSE Energy falling more than 1% each.