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BT MindRush: Time for caution as stock market rally not broad-based

The market is witnessing two dichotomies right now - one, the economy is showing signs of slowdown while markets are rising; and within markets, while top 15 companies are driving the Sensex and the Nifty, mid-caps and small-caps are being battered

Rashmi Pratap        Last Updated: December 16, 2019  | 11:15 IST
BT Mindrush: Time for caution as stock market rally not broad-based
Out of the 3,000 listed stocks, stocks numbering 501 to the last one have corrected 45 per cent and stocks from 251 to 500 are down by 26 per cent

The current rise in the Sensex and the Nifty is not broad-based and investors should exercise caution while investing in the current volatile scenario. The market is witnessing two dichotomies right now - one, the economy is showing signs of slowdown while markets are rising; and within markets, while top 15 companies are driving the Sensex and the Nifty, mid-caps and small-caps are being battered.

"There is confusion, fear and frustration among investors. They feel this (rally)  is not the reality. If you see the top 50 listed companies, about 10 names have done well, while 40 have de-grown. If you look at mid-caps and small-caps, the story is even more difficult," Radhika Gupta, CEO, Edelweiss Asset Managment, said at a panel discussion on "Bulls Vs Bears" at Business Today MindRush.

Vijay Chandok, MD and CEO, ICICI Securities, said everything being seen in the markets is perhaps not how things actually are. "Macro numbers are not reflective of headlines. But markets are reflecting two factors - there is a lot of global liquidity chasing returns and there is a concentrated focus on some stocks."

Also read: Indian businesses need to give importance to mental health, says Neerja Birla

This is driving the stock market. But other factors are at work too. "While some numbers are not looking encouraging, there are some green shoots. Like some part of consumption is still fine. And while private capex is weak, government expenditure is going into the productive side," he said. Aashish P. Somaiyaa, CEO of Motilal Oswal AMC, said all slowdowns, including the current one, are generalisations.

"It is actually nothing but identifying opportunities. Like compact SUVs are doing well but small cars are not. White goods are facing lesser problems than other goods. The second factor is that the market is always forward looking. Today, we have a loose monetary policy, loose fiscal policy. There is almost Rs 3 lakh crore surplus liquidity in international market. So, markets are always forward looking," he said.

FULL COVERAGE:MindRush 2019

But the risk for investors is that what markets are expecting doesn't always play out, he said, cautioning investors. Already, the stock market has corrected very dramatically. Out of the 3,000 listed stocks, stocks numbering 501 to the last one have corrected 45 per cent and stocks from 251 to 500 are down by 26 per cent.

"And if you remove IPOs, the whole market capitalisation is down 4 per cent. The market is not as crazy as it is made out to be," Somaiyaa added.

Nilesh Shah, MD of Kotak Mahindra Asset Management, said while some segments were witnessing a slowdown, some others were growing rapidly. "A similar trend is reflected in stock markets. Among the top 50 stocks, while top 15 have seen a 40 per cent jump, the balance have done 19 per cent. Mid-caps and small-caps are down. The pain of the economy is reflected in small- and mid-caps and not in super large-caps," he added. Since this is not a broad-based secular rally, investors must remain careful while picking stocks.

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