Nifty above 25,000 – Reality check on major large cap drivers?

9 Sep 2024 , 09:32 AM

NIFTY ABOVE 25,000; QUIET SHIFT TO DEFENSIVES

The month so June and July 2024 were full of key events. For example, June saw the political story coming to a consensus with Modi 3.0 forming a coalition government. July was when the first signs of weak rains and high food inflation were felt. However, the bigger news item in July was the presentation of the full budget. While the budget did cut the fiscal deficit further to 4.9% of GDP, there were other disconcerting announcements made by the budget. For instance, the securities transaction tax (STT) on futures and options transactions were sharply raised. In addition, the tax on short term capital gains and long term gains saw in increase of 500 bps and 250 bps respectively. As if that was enough, realty, gold and other non-equity assets lost their tax indexation benefits against a lower tax rate. Overall, the markets were far from happy with the announcements in the Union Budget.

Compared to June and July, the Nifty returns in August 2024 were relatively subdued, albeit still positive. The big announcement in the month was the US unemployment number, which came in sharply higher at 4.3%. That is nearly 100 bps higher on a yoy basis, and spooked the markets as it hinted at a likely hard landing for the US economy. However, by the middle of August, the narrative had entirely changed after the Fed minutes confirmed the first rate cut in September. This was further reinforced when Jerome Powell addressed the Jackson Hole Symposium in late August and made his famous statement, “the time is ripe for rate cuts. That led to a sharp recovery in large caps, as FPIs also turned net buyers in the second half of August 2024. We look at the best performing Nifty stocks in India. We look at best performers from 4 perspectives viz; momentum, value, resilience, and swing.

HOW THE NIFTY STOCKS FARED ON MOMENTUM 1-MONTH RETURNS

We start with the short term momentum story; i.e., stocks that generated the best returns in last one month among the large caps. As the Nifty held above 25,000, the gains were subdued at 1.14% in August as the Nifty struggle to decisively consolidate above the 25,000 mark. Out of the 50 stocks in the Nifty index, 34 stocks gave positive returns and 16 gave negative returns in August 2024. Here are the top 15 stocks by 1-month returns.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
BAJAJ-AUTO	10,900.00	12.70%	136.06%	10,921.35	4,602.20	136.84%	0.20%
SHRIRAMFIN	3,210.00	9.30%	66.18%	3,268.90	1,760.85	82.30%	1.80%
LTIM	6,151.60	8.80%	18.54%	6,442.00	4,513.55	36.29%	4.51%
BAJAJFINSV	1,782.00	7.96%	19.76%	1,793.50	1,419.05	25.58%	0.64%
CIPLA	1,654.60	7.16%	31.59%	1,663.70	1,132.00	46.17%	0.55%
HCLTECH	1,749.10	6.74%	49.58%	1,766.30	1,161.65	50.57%	0.97%
BHARTIARTL	1,584.00	6.54%	85.55%	1,608.40	847.05	87.00%	1.52%
SUNPHARMA	1,823.35	5.95%	63.88%	1,828.15	1,068.35	70.67%	0.26%
BAJFINANCE	7,210.00	5.78%	0.52%	8,192.00	6,187.80	16.52%	11.99%
SBILIFE	1,854.70	5.51%	43.15%	1,869.80	1,264.35	46.69%	0.81%
TECHM	1,635.55	5.28%	36.15%	1,665.00	1,098.15	48.94%	1.77%
HINDALCO	700.30	4.74%	52.52%	715.25	448.75	56.06%	2.09%
APOLLOHOSP	6,933.00	4.72%	43.90%	6,990.00	4,726.00	46.70%	0.82%
DRREDDY	6,990.00	4.16%	25.38%	7,107.45	5,205.55	34.28%	1.65%
INFY	1,949.85	4.04%	35.41%	1,951.00	1,351.65	44.26%	0.06%

Data Source: NSE

Which are the sectors that showed momentum in the last one month? There were 3 Bajaj group stocks in the top-10, but that is attributed to the IPO of Bajaj Housing Finance, which was likely to result in value monetization for shareholders. The one underlying theme in the gainers was the predominance of defensives. If you add the IT and healthcare plays in August 2024, 8 out the 15 stocks are defensives from these 2 sectors. Out of the top 15 stocks by 1-month returns, there were 4 IT stocks and 4 healthcare stocks. There were 3 stocks from the Bajaj group, due to the Bajaj Housing IPO trigger.

What about the list at the bottom? There are several heavyweights in industrials and infrastructure in this list. Tata Steel, SBI, Adani Ports, Maruti, Ultratech and Adani Enterprises were among the big losers in August, underling the shift from cyclicals to defensives. The top 10 stocks gave average monthly return of 7.64% while the top 20 stocks gave 5.81% for August 2024. It looked more like a rush to large cap safety in August 2024.

ONE YEAR RETURN STORY STILL LARGELY CONSISTENT.

Unlike the 1-month returns that captures momentum, the 1-year returns captures the secular trend. Stability in the long term gainers is essential to prevent portfolio panic. Nifty index generated annual returns of 31.07%. Out of the 50 stocks in the Nifty 50 index, 49 stocks gave positive returns and only 1 stocks gave negative returns in last one year. The table below captures the top-15 Nifty stocks ranked on returns over last one year.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
BAJAJ-AUTO	10,900.00	12.70%	136.06%	10,921.35	4,602.20	136.84%	0.20%
COALINDIA	523.95	0.53%	128.19%	543.55	228.40	129.40%	3.61%
ONGC	330.30	-1.03%	89.92%	345.00	173.05	90.87%	4.26%
NTPC	417.20	0.05%	88.92%	426.30	216.15	93.01%	2.13%
HEROMOTOCO	5,467.00	-0.60%	87.09%	5,894.55	2,890.05	89.17%	7.25%
ADANIPORTS	1,482.00	-5.61%	87.06%	1,621.40	754.50	96.42%	8.60%
BHARTIARTL	1,584.00	6.54%	85.55%	1,608.40	847.05	87.00%	1.52%
TATAMOTORS	1,109.00	-3.92%	84.92%	1,179.00	599.05	85.13%	5.94%
M&M	2,812.00	-3.52%	78.08%	3,013.50	1,450.00	93.93%	6.69%
SHRIRAMFIN	3,210.00	9.30%	66.18%	3,268.90	1,760.85	82.30%	1.80%
SUNPHARMA	1,823.35	5.95%	63.88%	1,828.15	1,068.35	70.67%	0.26%
HINDALCO	700.30	4.74%	52.52%	715.25	448.75	56.06%	2.09%
GRASIM	2,696.95	-2.81%	50.69%	2,877.75	1,781.85	51.36%	6.28%
HCLTECH	1,749.10	6.74%	49.58%	1,766.30	1,161.65	50.57%	0.97%
EICHERMOT	4,956.25	-0.04%	48.67%	5,058.90	3,275.00	51.34%	2.03%

Data Source: NSE

What are the sectors that emerged leaders in the last one year as the Nifty held above 25,000? The story was the same as last time; with 5 auto stocks and 3 PSU stocks in the list. In addition, the defensives made an entry into the top-15 list by 1-year returns, with HCL Tech and Sun Pharma doing the honours. Based on annual returns, 2 stocks generated more than 100%, while 13 stocks generated more than 50% returns. A total of 29 of the 50 Nifty companies outperformed the Nifty index returns; with defensives playing a bigger role.

How about the laggards on 1-year returns. There was just 1 stock (Asian Paints) that gave negative returns for FY24. Asian Paints has several headwinds working against it. The spike in crude prices led to thinner margins. The rural market has been slow to recover in India. Above all, the foray of big names like JSW and Aditya Birla group into paints portends a big challenge for Asian Paints as these groups have deep pockets. The bottom list was again dominated by financials Bajaj Finance, IndusInd Bank, Kotak Bank and HDFC Bank. Clearly, financials have not had a great year and that has kept the Nifty from giving better returns. In the case of financials, the challenge is on the valuation front, plus the thinning NIMs. The sectors that really turned around in the month were the IT and Pharma space, which saw a distinct shift from cyclicals to defensive plays.

HOW RESILIENT WERE NIFTY STOCKS IN AUGUST 2024

It is said that tough times don’t last, but tough guys do. The same applies to stocks also. We now look at the most resilient stocks in August 2024, using the bounce from the 52-week lows as a proxy for resilience. The Nifty stocks ranked on resilience, in terms of the bounce from 52-week lows. For the Nifty index, the bounce from the low of the year was 33.96%; largely led by PSU and auto stocks in the last one year, although IT and Pharma were the drivers in August 2024. Out of the 50 stocks in the Nifty 50 index, 3 stocks bounced more than 100% from the lows, while 19 stocks bounced over 50% from the lows and a total of 36 stocks showed more resilience than Nifty index. Resilience corresponds with annual returns.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
BAJAJ-AUTO	10,900.00	12.70%	136.06%	10,921.35	4,602.20	136.84%	0.20%
COALINDIA	523.95	0.53%	128.19%	543.55	228.40	129.40%	3.61%
BPCL	356.80	2.17%	5.02%	365.50	165.73	115.29%	2.38%
ADANIPORTS	1,482.00	-5.61%	87.06%	1,621.40	754.50	96.42%	8.60%
M&M	2,812.00	-3.52%	78.08%	3,013.50	1,450.00	93.93%	6.69%
NTPC	417.20	0.05%	88.92%	426.30	216.15	93.01%	2.13%
ONGC	330.30	-1.03%	89.92%	345.00	173.05	90.87%	4.26%
HEROMOTOCO	5,467.00	-0.60%	87.09%	5,894.55	2,890.05	89.17%	7.25%
BHARTIARTL	1,584.00	6.54%	85.55%	1,608.40	847.05	87.00%	1.52%
TATAMOTORS	1,109.00	-3.92%	84.92%	1,179.00	599.05	85.13%	5.94%
POWERGRID	338.00	-3.10%	37.97%	362.50	182.67	85.03%	6.76%
SHRIRAMFIN	3,210.00	9.30%	66.18%	3,268.90	1,760.85	82.30%	1.80%
SUNPHARMA	1,823.35	5.95%	63.88%	1,828.15	1,068.35	70.67%	0.26%
HINDALCO	700.30	4.74%	52.52%	715.25	448.75	56.06%	2.09%
DIVISLAB	5,105.00	3.47%	41.81%	5,132.50	3,295.30	54.92%	0.54%

Data Source: NSE

What are the sectors that are showing resilience in terms of bounce from the 52-week lows. The top 15 stocks by resilience are dominated PSU stocks and auto stocks. In fact, there are 5 PSU stocks in the top-15 and 4 auto stocks in this list. The stocks from outside these segments included Adani Ports, Bharti Airtel, Shriram Finance, Sun Pharma, Hindalco, and Divi’s Laboratories. The undertone of the gains in the last quarter has been largely led by the IT stocks and the Pharma stocks.

What is the story of the laggards in the Nifty in terms of lowest bounce from the 52-week lows? There is just 1 stock that bounced less than 10% from the lows of the year (IndusInd Bank) and 7 stocks bouncing less than 20% from the lows; a visible signal of market strength. The bottom list is dominated by the financial players and FMCG stocks, like in the previous month. Among the laggards other than IndusInd Bank were; Kotak Bank, Nestle India, Bajaj Finance, Titan, Asian Paints, and HDFC Bank.

SWING STORY – HOW CLOSE ARE NIFTY STOCKS TO YEARLY HIGHS?

An interesting way to understand the undertone of the market is to check for the swing; how close are the stock to their yearly highs. The closer they are, the higher the swing factor, and vice versa. When Nifty is holding above 25,000 levels; the sign of a good swing stocks lies in its ability to resist profit booking pressure at higher levels. The closer the stock is to the yearly highs, the stronger the swing factor. The Nifty index itself has a strong swing factor as it is just about 0.13% short of the 52-week high. Out of the 50 stocks in the Nifty 50 index, 28 stocks are less than 5% away from their 52-week highs, while a total of 44 stocks are less than 10% away. Clearly, the swing has turned favourable in the month of August 2024 for the Nifty stocks.

Stock Symbol	Market Price	1-Month Return	1-Year Return	52-week High	52-week Low	Bounce from Low	Distance to High
INFY	1,949.85	4.04%	35.41%	1,951.00	1,351.65	44.26%	0.06%
BAJAJ-AUTO	10,900.00	12.70%	136.06%	10,921.35	4,602.20	136.84%	0.20%
SUNPHARMA	1,823.35	5.95%	63.88%	1,828.15	1,068.35	70.67%	0.26%
DIVISLAB	5,105.00	3.47%	41.81%	5,132.50	3,295.30	54.92%	0.54%
CIPLA	1,654.60	7.16%	31.59%	1,663.70	1,132.00	46.17%	0.55%
BAJAJFINSV	1,782.00	7.96%	19.76%	1,793.50	1,419.05	25.58%	0.64%
TCS	4,562.70	3.84%	35.66%	4,592.25	3,311.00	37.80%	0.64%
SBILIFE	1,854.70	5.51%	43.15%	1,869.80	1,264.35	46.69%	0.81%
APOLLOHOSP	6,933.00	4.72%	43.90%	6,990.00	4,726.00	46.70%	0.82%
HDFCLIFE	741.85	3.24%	14.57%	748.50	511.40	45.06%	0.89%
HCLTECH	1,749.10	6.74%	49.58%	1,766.30	1,161.65	50.57%	0.97%
ITC	504.00	1.32%	14.15%	510.65	399.35	26.21%	1.30%
BHARTIARTL	1,584.00	6.54%	85.55%	1,608.40	847.05	87.00%	1.52%
DRREDDY	6,990.00	4.16%	25.38%	7,107.45	5,205.55	34.28%	1.65%
TECHM	1,635.55	5.28%	36.15%	1,665.00	1,098.15	48.94%	1.77%

Data Source: NSE

Unlike the 1-year returns list and the resilience list, which are largely similar, the swing list finds some new entrants; and is structurally similar to the 1-month return rankings. That is because it captures the immediate impact more forcibly. If you look at the top 15 in terms of proximity to their highs, 12 are defensives from IT, healthcare, and insurance. The only 3 exceptions to this defensive rule are Bajaj Auto, Bharti Airtel, and ITC Ltd. The top-15 list has a strong dominance of recent performers with 5 players from healthcare, 4 from IT, and 3 from the insurance sector. The swing list finds more of stock specific stories than just sector level stories. That is why swing or proximity to highs, gives a refreshingly new perspective.

What is the story of the laggards in the Nifty in terms of proximity to the 52-week highs. There are 6 stocks that are more than 10% away from their 52-week highs; and the list is again dominated by the financials and industrial cyclicals. Some of the other stocks showing selling pressure at higher levels include Nestle and Maruti Suzuki.

CONVICTION INDEX: WHAT ARE THE COMMON FACTORS?

One way to check the conviction of outperformance, is to look at stocks that outperform on multiple parameters. What are the common factors among leaders in terms of 1-month returns, 1-year returns, resilience, and swing? Here is what we read from the data.

• The broad trend is towards a gradual shift from the cyclicals towards the defensives, Three sectors; IT, healthcare and insurance are seeing a lot of traction in recent months. Most investors are preferring to play it safe at such lofty valuations and historic highs.
• Auto stocks which were the dominant force across categories, are now visible largely in the long term returns and the resilience category. That is the story of many PSUs too, where profit booking is visible at higher levels. Defensives have take other lists.
• The big surprise is the swing factor favouring healthcare stocks, IT stocks and life insurance stocks as they have dominated 1-month returns and swing factor. That could be a signal of things to come, and has analytical value for investors looking at future themes to invest into.

One final point!. The real action in the market may not be in the toppers list, but in the intermediate list. For example, IT and healthcare have been major drivers of the market direction in recent weeks. That trend is likely to play out for a much longer time.