The sharp polarisation in the market between the super 15 stocks and the rest of the market has continued to play out even in times of the pandemic. Top 15 stocks on the Nifty have outperformed the markets between February 2020 and May 2020, during the time equity markets were highly volatile due to the ongoing Covid-19 pandemic, according to Ambit Asset Management. The top 15 stocks have outperformed with a decline of 11% whereas the remaining 35 stocks in the 50-share benchmark declined by 26%.
According to the portfolio management services (PMS) company, the polarisation has continued unabated between the Nifty top-15 companies and the other 35 constituents of the Nifty. According to Sushant Bhansali, chief executive officer, Ambit Asset Management, if there are no further disruptions then the polarisation is likely to reduce, but if more disruptions continue to take place then it would lead to more and more polarisation in the market. “This is because liquidity flows are increasing and everyone is wanting to chase a select few stocks. One literally needs to attract the seller with an attractive price to buy a good company stock. So, the valuations of a select few companies will continue to rise,” said Sushant Bhansali.
The PMS stated that since fiscal year 2012, the Nifty’s delivered corporate earnings are lesser than the initial expectation barring fiscal year 2019. This the PMS added was because of high flows, over-optimism and too many disruptions over a short period of time. According to them, equities as an asset class, continue to deliver better returns than other asset classes. They added that strong flows coming through mutual funds are leading to a rise in the money flows through the market. “Analysts need to catch up with the valuations of the company based on the flows coming into their stocks leading to them leaning towards an optimistic scenario, however, in the last seven years there have been several disruptions such as Covid-19, GST, demonetisation, and NBFC crisis, among others, that has impacted the economy over the years, which leads to the optimism wavering,” said Ambit Asset Management.
Coffee Can, a large cap oriented portfolio by Ambit Asset Management, has seen a compounded annual growth rate (CAGR) of 18% between fiscal 2011 to 2020 against 5% for the Nifty. Additionally, the earnings per share growth for FY20 is estimated to be at 11% for the Coffee Can portfolio against negative 2% for Nifty, the PMS mentioned. The PMS stated that this was possible because of the outcome of its good process which included stringent quantitative filters, deep research and team expertise or focus, as well as high focus on earnings growth and quality followed by risk management.