How steep is the fall in the Indian stock markets?

14 Mar 2022 , 09:38 AM

In the last 5-6 months since FPI selling started, the benchmark Nifty is down -10.61% as at the close of 11th March 2022. That may not like a very steep correction from the highs but that is because the index is a market-cap weighted average and hence misleading. We look at 4 indices viz. Nifty-50, Nifty-200, Nifty MidCap-50 and the Nifty Smallcap-250 to gauge how representative the index has been of the entire sample. Is the actual fall much sharper than what indices indicate?

How steep is the actual fall in the Nifty-50?

From the peak of the markets, the Nifty-50 has fallen -10.61%. Is whether this figure truly representative of the correction in Nifty stocks. Check the table below.

Company Name	Last Traded Price	52Week High	Fall from High (%)
HDFCLIFE	518.50	775.65	-33.15%
HEROMOTOCO	2,330.00	3,475.00	-32.95%
SHREECEM	22,400.00	32,048.00	-30.10%
DRREDDY	3,974.95	5,614.60	-29.20%
BPCL	363.20	503.00	-27.79%
INDUSINDBK	900.10	1,242.00	-27.53%
ULTRACEMCO	6,020.00	8,269.00	-27.20%
HINDUNILVR	2,096.00	2,859.30	-26.70%
HDFC	2,232.00	3,021.10	-26.12%
M&M	734.25	979.00	-25.00%

The above table captures the 10 stocks that lost maximum value from their 52-week highs. Clearly, the Nifty fall of -10.61% is hardly representative of the fall that the 10-biggest losers on the Nifty are depicting. Here are some observations.

• Out of the 50 stocks in the Nifty, a total of 43 stocks fell more than the Nifty with just 7 stocks falling less than the Nifty from 52-week highs.
• The median correction from the peak of Nifty stocks is -18.79%, which can be interpreted as more reflective of the Nifty portfolio.
• If you consider median as representative of the Nifty portfolio, the current Nifty level should be closer to 15,109, rather than 16,630 it is quoting at.
• The divergence arises because the returns on the Nifty has converged around the fall in heavyweight stocks like Reliance, TCS, Infosys, ITC, Bharti Airtel etc.

How steep is the actual fall in the Nifty-200?

Since the Nifty-50 is rather narrow, we look at the Nifty-200 for a broader view. From the peak of the markets, the Nifty-200 has fallen -11.15%. But is this figure also truly representative of the correction in Nifty 200 stocks. Check the table below.

Company Name	Last Traded Price	52Week High	Fall from High (%)
DHANI	78.40	305.65	-74.35%
INDIAMART	4,488.00	9,710.70	-53.78%
MANAPPURAM	116.95	224.50	-47.91%
RBLBANK	133.45	249.25	-46.46%
BANKINDIA	48.65	87.00	-44.08%
DALBHARAT	1,426.00	2,548.40	-44.04%
GODREJPROP	1,489.90	2,598.00	-42.65%
MGL	749.00	1,284.40	-41.68%
LUPIN	746.00	1,267.65	-41.15%
IRCTC	757.15	1,279.26	-40.81%

The above table captures the 10 stocks in Nifty-200 that lost the most from their 52-week highs. Clearly, the Nifty-200 fall of -11.15% is not representative of the fall that the 10-biggest losers on Nifty-200 are depicting.

• Out of the 200 stocks in the Nifty-200, a total of 172 stocks fell more than the Nifty with just 28 stocks falling less than the Nifty from 52-week highs.
• The median correction from the peak of Nifty-200 is -21.80%, which can be interpreted as more reflective of the Nifty-200 portfolio.
• If you consider the median as representative of the Nifty portfolio, the current Nifty-200 level should be closer to 7,728, rather than 8,792 where it is quoting at.

How steep is the actual fall in the Nifty Midcap-50?

Till now we focussed on large caps. Let us now look purely at the trend in mid-caps, using the Nifty Midcap-50 as proxy. From the peak of the markets, the Midcap-50 fell -15.42%. Check the table below.

Company Name	Last Traded Price	52Week High	Fall from High (%)
MANAPPURAM	116.95	224.5	-47.91%
BANKINDIA	48.65	87.00	-44.08%
GODREJPROP	1,489.90	2,598.00	-42.65%
IRCTC	757.15	1,279.26	-40.81%
L&TFH	66.80	108.35	-38.35%
IDEA	10.40	16.80	-38.10%
IDFCFIRSTB	42.35	68.10	-37.81%
ZEEL	241.75	378.70	-36.16%
SRTRANSFIN	1,092.00	1,696.40	-35.63%
BHEL	51.85	80.35	-35.47%

The above table captures the 10 stocks in Nifty Midcap-50 that lost maximum from their 52-week highs. While Nifty Midcap-50 has fallen steeper than the Nifty-50 or the Nifty-200, the -15.42% fall in the index is still not representative of the fall that the 10-biggest losers are indicating. Here are key observations.

• Out of the 50 stocks in the Nifty Midcap-50, a total of 40 stocks fell more than the index with just 10 stocks falling less from annual peaks.
• The median correction from the peak of Nifty Midcap-50 stocks is -25.52%, which can be interpreted as more reflective of the Nifty Midcap-50 portfolio.
• If you consider the median as representative of the Nifty portfolio, the current Nifty Midcap-50 level should be closer to 6,850, rather than 7,778 where it is quoting at.

How steep is the actual fall in  Nifty Smallcap-250?

For a broad representative picture, we considered a broad-based small cap index i.e. the Nifty Smallcap-250. From the peak of the markets, the Nifty Smallcap-250 fell -13.48%. Check the table below.

Company Name	Last Traded Price	52Week High	Fall from High (%)
STAR	327.50	947.00	-65.42%
DBL	260.80	749.80	-65.22%
TTML	108.25	290.15	-62.69%
WOCKPHARMA	309.30	804.90	-61.57%
SEQUENT	130.40	336.50	-61.25%
INFIBEAM	44.80	113.70	-60.60%
SOLARA	751.00	1,859.95	-59.62%
SPANDANA	348.00	820.00	-57.56%
UJJIVAN	111.85	261.70	-57.26%
PNB Housing	405.00	925.00	-56.22%

The above table captures the 10 stocks in Nifty Smallcap-250 that lost maximum from their 52-week highs in percentage terms. While Nifty Smallcap-50 has fallen steeper than the Nifty-50, the -13.48% fall in the index is not representative of the fall that the 10-biggest losers are indicating.

• Out of the 250 stocks in the Nifty Smallcap-250, a total of 218 stocks fell more than the Nifty Smallcap-250 with just 32 stocks falling less.
• The median correction from the peak of Nifty Midcap-50 stocks is -27.30%, which can be interpreted as more reflective of the Nifty Smallcap-250 portfolio.
• If you consider median as representative, the current Nifty Smallcap-250 level should be closer to 7,651, rather than 9,106 where it is quoting at.

Key takeaways for investors

What do investors take away from this story. The index, in most cases, is not representative of the portfolio. Look at the index levels in terms of adjusted median fall than just the mean fall. But it also highlights the risk of giving too much weightage to index levels. They have been specifically not reflective of the market reality this time around.

In the above 4 cases, the actual numbers are grossly skewed towards losses with the median losses substantially higher than mean losses. If you focus purely on the index, you run the risk of missing out on opportunities of buying low in the market. A bottom-up approach would be the best approach in identifying the target stocks.