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Most attractive and riskiest Nifty stocks in May 2024

9 Jun 2024 , 10:02 PM

HOW TO LOOK BACK AT NIFTY IN MAY 2024

For the month of May 2024, Nifty index closed with losses of -0.33%. That was not too surprising considering that the VIX was persistently above the 22 mark through the month and there was a general concern that the ruling NDA may not get a simple majority like the last two elections. This led to FPIs being cautious even as domestic investors continued to buy into stocks. If you look at the Nifty, 21 stocks gave positive returns in May 2024 while 29 stocks gave negative returns. Automobiles and FMCG were among the top performing stocks in May 2024 while at the bottom, there were a number of Tata group stocks. IT stocks were also under pressure in May 2024, with concerns over global demand.

There are 3 stocks that have given double-digit returns in the month of May 2024 while 8 stocks have given returns in excess of 5%. On the downside, a total of 9 stocks fell by more than 5% in the month of May 2024. Out of these 9 companies that lost more than 5% during May 2024; three were financials, two were FMCG companies and two were Tata group companies. In fact, out of the 29 companies that gave negative returns in May 2024, four were Tata group companies and six were IT sector companies.

DID THE NIFTY HEAVYWEIGHTS CHANGE IN MAY 2024

Between April 2024 and May 2024, the weightages were largely the same. Thanks to the recent really, SBI and Bharti Airtel are now a permanent part of the top-10 companies by weight in the index. Weightages on the Nifty are not only based on market cap but also on the free float; which is the portion of equity capital that is not with the promoters or and is not locked in. That is the reason HDFC Bank has a higher weightage than Reliance, although Reliance market cap is nearly twice that of HDFC Bank. Nearly 50% of Reliance shares are held by the Ambani family. In the case of TCS, Tata Sons owns over 70%, and hence TCS gets a lower weight than Infosys. Here are top 10 Nifty weightage stocks.

Stock Name Weightage (%)
HDFC Bank Ltd. 11.60
Reliance Industries Ltd. 9.75
ICICI Bank Ltd. 7.93
Infosys Ltd. 5.06
Larsen & Toubro Ltd. 4.37
ITC Ltd. 3.81
Tata Consultancy Services Ltd. 3.75
Bharti Airtel Ltd. 3.60
Axis Bank Ltd. 3.32
State Bank of India 3.21

Data Source: NSE

Out of the Nifty-50 stocks, only HDFC Bank has double digit weightage with Reliance dropping out of that list after its lacklustre stock performance in May 2024. The top 10 stocks account for 56.40% of the overall Nifty weight while the top-20 stocks on the Nifty accounted for 74.71% of the Nifty weightage. A total of 29 stocks had a weightage of 1 or above; while 21 stocks had a weightage of less than 1 on the Nifty 50 index in May 2024.

If you look at the top 10 list, 4 out of these 10 stocks are banks (HDFC Bank, ICICI Bank, Axis Bank and SBI). and 2 are IT companies. If you look at the top 20 in terms of Nifty weightage, then 6 stocks belong to the BFSI space, 3 belong to the IT space, 2 are FMCG companies and 3 are auto stocks. For the first time, we see 2 PSU stocks in the top-20 by weightage on the Nifty viz., NTPC Ltd and Power Grid Corporation Ltd.

WHICH NIFTY STOCKS GAVE THE BEST RETURNS IN MAY 2024

For the month of May 2024, the Nifty gave returns of -0.33%. The table below captures the top 10 stocks in May 2024 in terms of Nifty returns in absolute terms. These returns are just point to point returns (and not annualized).

Stock Name MOM Returns (%)
Mahindra & Mahindra Ltd. 16.23
Hero MotoCorp Ltd. 12.69
Adani Enterprises Ltd. 11.68
Adani Ports and Special Economic Zone Ltd. 8.49
Britannia Industries Ltd. 8.46
Coal India Ltd. 8.12
Divi’s Laboratories Ltd. 7.62
Hindalco Industries Ltd. 6.98
Hindustan Unilever Ltd. 4.42
Bharti Airtel Ltd. 3.82

Data Source: NSE

The top-10 is a fairly eclectic mix this time around. There are 2 auto stocks, 2 FMCG stocks, 2 Adani group stocks; with Coal India being the sole PSU stocks in the top 10. How is the sectoral mix of top 20 stocks on returns? There were 3 financials (BFSI) and 4 auto stocks in the top 20. Interestingly, with the hopes of a revival in metals demand, 3 mineral and metal stocks also appeared in this list viz. Hindalco, Tata Steel and Coal India. Even PSUs were well represented in the top-20 list with 4 companies viz. Coal India, BPCL, Power Grid and SBI figuring in the top-20 list by returns..

HOW NIFTY STOCKS RANKED ON BETA IN MAY 2024

Beta measures of systematic risk of the stock vis-à-vis the index (Nifty). Beta is the risk that cannot be diversified away; hence it is also called unsystematic risk. While Nifty has a beta of 1, there could be wide variations in the beta of Nifty components. Beta shows the extent to which the stock moves in tandem with the index. For example, beta of 1.5 means every 1% move in the Nifty will produce a 1.5% move in the stock; both up and down. Stocks with Beta of more than 1 are classified as aggressive stocks while stocks with Beta below 1 are classified as defensive stocks.

Stock Name Beta (X)
Adani Enterprises Ltd. 1.71
Tata Steel Ltd. 1.50
Adani Ports and Special Economic Zone Ltd. 1.45
Bharat Petroleum Corporation Ltd. 1.34
JSW Steel Ltd. 1.34
Coal India Ltd. 1.33
Oil & Natural Gas Corporation Ltd. 1.28
NTPC Ltd. 1.26
Wipro Ltd. 1.25
Larsen & Toubro Ltd. 1.20

Data Source: NSE

Out of the 50 companies in the Nifty index, 24 were aggressive stocks with Beta of 1 or above while the balance 26 stocks were defensive stocks with Beta of less than 1. The bottom 8 stocks in the Beta rankings are from the healthcare and FMCG space; with Bajaj Auto and HDFC Life Insurance being the exceptions. Adani group stocks emerged as the most aggressive among the Nifty stocks as a business group while the list was dominated by Financials, commodities, and Infrastructure.

If you look at the high Beta stocks, there are just a handful of stocks like Adani Enterprises, Adani Ports SEZ, Mahindra & Mahindra, and Coal India, that have justified high beta with high returns too. In the top 20 beta stocks, there are a whopping 10 stocks giving negative returns. PSU sector prominently stood out in the month of May 2024 as a sector with several negative returns despite relatively higher Beta.

RANKING NIFTY STOCKS ON VOLATILITY FOR MAY 2024

The problem with Beta is that it only considers the systematic risk in stocks. One option is to use volatility, which looks at overall risk i.e. systematic and unsystematic risk combined. The logic of using beta is generally that the unsystematic risk is diversified away, but that is normally not the case as diversification often leads to risk substitution rather than risk reduction. Volatility (standard deviation) is an alternate method to measure total risk of the stock. Here are the top-10 stocks by volatility (standard deviation) for May 2024.

Stock Name Volatility (X)
Adani Enterprises Ltd. 2.95
Bharat Petroleum Corporation Ltd. 2.25
Coal India Ltd. 2.22
Tata Motors Ltd. 2.19
Cipla Ltd. 2.13
Adani Ports and Special Economic Zone Ltd. 2.05
Power Grid Corporation of India Ltd. 1.94
Mahindra & Mahindra Ltd. 1.91
Larsen & Toubro Ltd. 1.87
Titan Company Ltd. 1.86

Data Source: NSE

There are some interesting cues that we get from the volatility rankings of the Nifty stocks for May 2024. Out of the 50 stocks only 6 stock can be classified as highly volatile with volatility of 2X or more. These include Adani Enterprises, BPCL, Coal India, Tata Motors, Cipla and Adani Ports SEZ. Ironically, the PSU stocks are nowhere to be seen in the top 20 return rankings but are dominating the top-20 list in terms of volatility. Clearing, the return to risk ratio is not too favourable for these PSUs.

Let us look at whether the most volatile stocks are compensating in the form of higher returns? If you look at the top 20 stocks, some of the stocks that compensated high volatility with high returns include Adani Enterprises, Coal India, Adani Ports, Mahindra & Mahindra, Britannia, Divi’s Laboratories and Hero Motocorp. The companies with high volatility that gave negative returns were Tata Motors, Titan, ONGC, Shriram Finance, and JSW Steel. These are clear cases where volatility is resulting in negative compensation.

HOW NIFTY STOCKS RANKED ON R-SQUARED IN MAY 2024

What exactly does R-Squared signify? This measure shows how much of the stock returns are explained by the returns on the index (Nifty in this case). There is a subtle difference between R-Squared and Beta. Beta measures how aggressive the stock is with respect to the Nifty. In bullish markets you focus on high beta stocks and in bearish markets you shift to low beta stocks. However, you are not too sure if the Beta reflects a real dependence on the Nifty or it is just casual. This gap is filled by R-Squared. Normally, the average R-Squared of the Nifty stocks is around 0.20, so any R-Squared figure of 0.40 to 0.50 shows a significant Nifty explanation to the stock. The interpretation here is that Beta is a lot more significant when R-Squared is also high; because it then means that the relationship is not random.

Stock Name Weightage (%) Beta (X) R-Squared (X)
Reliance Industries Ltd. 9.75 1.20 0.43
HDFC Bank Ltd. 11.60 1.14 0.38
Tata Steel Ltd. 1.39 1.50 0.36
JSW Steel Ltd. 0.85 1.34 0.35
UltraTech Cement Ltd. 1.15 1.07 0.32
Larsen & Toubro Ltd. 4.37 1.20 0.31
Wipro Ltd. 0.62 1.25 0.31
ICICI Bank Ltd. 7.93 0.91 0.31
Grasim Industries Ltd. 0.86 1.12 0.30
IndusInd Bank Ltd. 0.97 1.20 0.29

Data Source: NSE

There are hardly any surprises in the above list. Reliance has the highest R-Squared followed by HDFC Bank and Tata Steel. If you look at the above list, the stock with the highest R-Squared are also generally aggressive stocks and the high R-Squared makes the Beta as a measure of market risk, more reliable. In this case, 9 out of the top 10 stocks by R-Squared are also aggressive stocks with a beta of more than 1; with ICICI Bank being the sold exception. If you look at the top 10 stocks on R-Squared, 3 of them are banks and 4 are commodity companies. Which are the low R-Squared stocks? Once again, the bottom list is dominated by stocks from the healthcare space, with 50% of the bottom R-Squared stocks belonging to the healthcare space. That is an indication of healthcare offering good diversification benefits on a large cap portfolio.

Finally, we will turn to ranking of top 10 stocks on the Explanation Factor. We are calculating the explanation factor as the product of the Beta and R-Squared. It shows how much of the stock risk is genuinely explained by the Beta.

Stock Name Weightage (%) Beta R-Squared Explanation
Tata Steel Ltd. 1.39 1.50 0.36 0.540
Reliance Industries Ltd. 9.75 1.20 0.43 0.516
JSW Steel Ltd. 0.85 1.34 0.35 0.469
HDFC Bank Ltd. 11.60 1.14 0.38 0.433
Wipro Ltd. 0.62 1.25 0.31 0.388
Adani Enterprises Ltd. 0.90 1.71 0.22 0.376
Larsen & Toubro Ltd. 4.37 1.20 0.31 0.372
IndusInd Bank Ltd. 0.97 1.20 0.29 0.348
UltraTech Cement Ltd. 1.15 1.07 0.32 0.342
Grasim Industries Ltd. 0.86 1.12 0.30 0.336

Data Source: NSE

The ranking of top stocks by the explanation factor, broadly corresponds with the R-Squared list. The highest weight stocks like Reliance Industries and HDFC bank are in the explanation list, which is not too surprising. At the bottom of the explanation factor rankings, there are the FMCG and healthcare names, with little explanation coming from market returns. Others like Bajaj Auto and HDFC Life are also emerging as insular picks.

Purely looking at returns does not help you separate the wheat from the chaff. A more granular perspective of risk and insularity through measures like standard deviation, beta and R-Squared give a more insightful picture of the Nifty performance in May 2024.

Related Tags

  • Alpha
  • IndexBeta
  • MonthlyReturns
  • nifty
  • RSquared
  • sensex
  • StockMarkets
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