February 2025– How sectors fared on returns, risk, and valuations

6 Mar 2025 , 09:48 AM

STOCK MARKET BIG PICTURE FOR FEBRUARY 2025

How did the Indian stock markets perform in February 2025, in terms of generic, sectoral, and thematic indices? Here is a quick dekko.

• Let us start with generic indices for February 2025. In this case, the 1-month returns were negative across all generic indices; although the smaller indices were hit harder due to a combination of rupee weakness and high inflation. The Nifty fell the least about -5.79% in February 2025. The Nifty Next-50 took a much bigger hit of -9.51% in February. Among smaller indices, mid-cap 100 index fell -10.71%, while the Small Cap fell -13.00%. The smaller they were, the harder they fell; with Nifty microcap falling -14.27%. On 1-year returns, the Nifty 50 at +1.89% was the best performer.
• What about thematic indices in February 2025. Once again, REITS Index fell just -1.5% and Services Index fell -4.22% in February 2025. The worst performing themes in February 2025 in terms of returns were Indian Railway PSUs at -21.97%, India Defence at -19.57%, and SME Emerge at -15.74%. IPO index lagged once again.
• Let us turn to strategy indices in February 2025? There was deep contraction visible across themes; except Low Volatility and Equal Weight. That is almost similar to January Among the worst performing strategy indices in February were Momentum, Quality, and Value; with all of them losing in double digits.
• Finally, what sectors outperformed in February 2025? The saving grace came from Banks falling just -2.51% with private banks doing still better at -0.66%. The worst hit sectors were Realty -13.40%, IT -12.53%, Media -12.11%, Auto -10.35%, and FMCG -10.08%..

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

The table captures the returns on key sectors with ranking on 1-year returns.

Sectoral Index	1-Year Returns	3-Year Returns	5-Year Returns
Nifty Financial Services	13.98	11.83	11.98
Nifty Non-Banks	8.58	15.35	13.63
Nifty Consumer Durables	7.93	7.99	16.49
Nifty Healthcare Index	6.75	16.92	22.33
Nifty Bank	5.76	11.05	11.29
Nifty Private Bank	5.68	10.41	9.26
Nifty Pharma	4.96	16.18	22.08
Nifty Metal	4.50	13.05	31.58
Nifty Auto	1.16	24.75	25.56
Nifty IT	1.16	5.48	22.07
Nifty FMCG	-4.33	14.57	13.64
Nifty Realty	-12.13	22.68	23.64
Nifty Oil & Gas	-15.42	10.78	18.48
Nifty PSU Bank	-17.85	30.07	24.79
Nifty Media	-31.91	-11.11	-2.98

Data Source: NSE Indices

There are some interesting takeaways on 1 year returns.

• It is back to good old BFSI as the Nifty Financial Services Index leads with 13.98% returns in the last one year; followed by NBFCs at 8.58%. Consumer Durables at 7.93%, and Healthcare at 6.75%. Media was the worst hit in the last one year, down -31.91%, while PSU banks are down -17.85%, Oil & Gas down -15.42%, and Realty down -12.13%.
• Out of the 15 sectors, 10 sectors gave positive returns in last 1 year, while 5 sectors gave negative returns. The 15 sectors gave average returns of -1.41% over the last 1 years. While the top-10 sectors gave returns of 6.05%, bottom 5 gave -16.33%. However, on a 3-year and 5-year basis; only media has given negative return.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns just represent one side of the coin. Here is a look at the risk parameters.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year R2
Nifty PSU Bank	29.56	1.57	0.74	0.55
Nifty Realty	29.37	1.40	0.67	0.44
Nifty Media	27.55	1.06	0.54	0.29
Nifty Metal	26.48	1.40	0.74	0.55
Nifty Oil & Gas	24.44	1.38	0.79	0.62
Nifty Non-Banks	21.20	1.24	0.82	0.67
Nifty IT	19.99	0.76	0.54	0.29
Nifty Auto	19.95	1.09	0.77	0.59
Nifty Consumer Durables	18.74	0.91	0.68	0.46
Nifty Bank	17.05	1.05	0.86	0.74
Nifty Financial Services	17.01	1.06	0.88	0.77
Nifty Private Bank	16.76	1.00	0.84	0.70
Nifty Pharma	15.96	0.59	0.52	0.27
Nifty Healthcare Index	15.76	0.60	0.54	0.29
Nifty FMCG	14.63	0.48	0.46	0.21

Data Source: NSE Indices

The above table is ranked on 1-year volatility (standard deviation) starting with the most volatile sectors and going down to the least volatile sectors.

• In terms of standard deviation of returns, PSU banks, realty, and metals continue to be the most volatile, despite the correction in recent months. Over a longer timeframe higher volatility has been compensated by higher returns in all these 3 sectors. Healthcare remains the only sector to give top class returns despite having low volatility among key sectoral indices. Private banks are low on volatility, but long term returns are subdued too. FMCG saw a lot of price damage in the last 1 month.
• The 15 sectors had average volatility of 20.96% in last 1 year. The average beta of all sectors was at 1.04, which approximately reflects the Nifty. A total of 10 of the 15 sectors were aggressive with beta of more than 1. FMCG, IT and healthcare remained the best portfolio diversification bets, due to low correlation with the index.

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

Finally, we look at sectoral valuations ranked on P/E ratios as of February 2025.

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	68.64	10.93	0.42
Nifty FMCG	41.31	9.92	2.14
Nifty Realty	38.68	4.57	0.47
Nifty Healthcare Index	34.21	5.38	0.61
Nifty Pharma	29.95	4.84	0.70
Nifty IT	28.28	7.72	2.75
Nifty Auto	19.70	4.20	1.08
Nifty Non-Banks	19.53	3.04	0.92
Nifty Metal	18.96	2.34	2.41
Nifty Financial Services	15.32	2.78	0.95
Nifty Private Bank	14.39	2.20	0.61
Nifty Bank	12.68	2.13	1.03
Nifty Oil & Gas	11.74	1.45	3.11
Nifty PSU Bank	5.98	1.10	2.61
Nifty Media	N.A.	1.08	0.85

Data Source: NSE Indices

Here are key takeaways from the three valuation parameters.

• Consumer durables, FMCG, and healthcare are still having the richest valuations, despite the recent correction. The sharp correction, however, has made many of the sectors very attractive in dividend yield terms. For instance, oil & gas at 3.11%, IT at 2.75%, PSU Banks at 2.61%, Metals at 2.41%, and FMCG at 2.14% stand out as the DY picks.
• The average P/E of all sectors stands at 23.96X, a sharp lowering in February. The average dividend yield also looks relatively attractive now at 1.38%.

Sectoral returns have shifted sharply negative in February; but that also means that most sectors are starting to look attractive in valuation terms.