The juiciest and the riskiest Nifty stocks in February 2024

15 Mar 2024 , 03:42 PM

HOW TO LOOK BACK AT NIFTY IN FEBRUARY 2024

For the month of February 2024, Nifty index closed with relatively healthy gains of 1.18%, which is a good performance despite the Nifty trading at all-time highs for a consistent period of time. However, the returns do not tell us the full picture since these index returns are more like weighted average returns of the 50 stocks and the variations could be quite wide within the index. Behind the 1.18% returns on the Nifty, there are 28 stocks that have given positive returns while 22 stocks have given negative returns.

There are 6 stocks that have given double-digit returns in the month of February 2024 while 15 stocks have given returns in excess of 5%. On the downside, two stocks viz. Hindalco and UPL fell more than 10%. While Hindalco lost value due to the commodity weakness and concerns in China, the stock of UPL lost value after it was removed from the Nifty and replaced with Shriram Finance Ltd. That resulted in large scale adjustment selling by index funds and index ETFs.

UNDERSTANDING NIFTY WEIGHTAGES IN FEBRUARY 2024

Weightages on the Nifty are not only based on market cap but also on the free float. That is why HDFC Bank has a higher weightage than Reliance, although Reliance has a market cap that is nearly twice that of HDFC Bank. Nearly 50% of Reliance shares are held by the Ambani family. In the case of TCS also, due to more than 70% stake being held by Tata Sons, the company ranks fifth on free float weightage list. Here are top 10 Nifty weightage stocks.

Stock Name	Weightage (%)
HDFC Bank Ltd.	10.97
Reliance Industries Ltd.	10.28
ICICI Bank Ltd.	7.68
Infosys Ltd.	6.22
Tata Consultancy Services Ltd.	4.32
Larsen & Toubro Ltd.	4.28
ITC Ltd.	3.74
Axis Bank Ltd.	3.10
State Bank of India	2.99
Bharti Airtel Ltd.	2.96

Data Source: NSE

This is the weight of the top-10 Nifty stocks in terms of free float weight in the overall index. Out of the Nifty-50 stocks, 2 stocks have double digit weightage viz. HDFC Bank and Reliance Industries. The top 10 stocks account for 56.54% of the overall Nifty weight while the top-20 stocks on the Nifty accounted for 75.16% of the Nifty weightage. A total of 28 stocks had a weightage of over 1 while 22 stocks had a weightage of less than 1.

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 FMCG space, 3 are IT companies and 3 are auto stocks. NTPC Ltd was the sole PSU stocks in the top-20 list in terms of index weightage.

HOW NIFTY STOCKS RANKED ON RETURNS IN FEBRUARY 2024

For the month of February 2024, the Nifty gave returns of 1.18%. The table below captures the top 10 stocks in February 2024 in terms of Nifty returns in absolute terms. These returns are just point to point returns (and have not been annualized).

Stock Name	MOM Returns (%)
Bharat Petroleum Corporation Ltd.	20.21
Mahindra & Mahindra Ltd.	17.01
State Bank of India	16.80
Sun Pharmaceutical Industries Ltd.	11.24
Maruti Suzuki India Ltd.	10.81
SBI Life Insurance Company Ltd.	10.81
Cipla Ltd.	9.57
Adani Ports and Special Economic Zone Ltd.	9.34
Power Grid Corporation of India Ltd.	9.08
Wipro Ltd.	8.46

Data Source: NSE

Let us look at the sectoral mix of the top 20 stocks on returns. The top 20 by returns on the Nifty had several PSU names. For instance, BPCL topped the Nifty returns, even as 5 other Nifty stocks also gave double digit returns. In the top 20, there were a total of 6 PSU stocks indicating that these PSU stocks continue to dominate returns on the Nifty. There were 3 pharmaceutical companies in the list and the power sector and the auto sectors also had a strong representation with 3 companies each. Were there any sectoral trends in the bottom performers? There were 3 FMCG companies in the bottom 10 while the others like Hindalco, UPL, Divi’s and Hero Motocorp were more news specific.

HOW NIFTY STOCKS RANKED ON BETA IN FEBRUARY 2024

Beta is a standard measure of systematic risk of the market; or the risk that cannot be diversified away. The Nifty index, overall, has a Beta of 1, but within the Nifty there are wide variations. Beta measures systematic risk and shows the extent to which the particular stock moves as a proportion of the index. A beta of 1.5 means every 1% move in the Nifty will produce a 1.5% move in the stock; and this applies on the upside and on the downside too. Stocks with Beta of above 1 are aggressive stocks while stocks with Beta of below 1 are referred to as defensive stocks.

Stock Name	Beta (X)
Adani Enterprises Ltd.	2.02
Adani Ports and Special Economic Zone Ltd.	1.49
Reliance Industries Ltd.	1.27
HDFC Bank Ltd.	1.27
Tata Steel Ltd.	1.25
Infosys Ltd.	1.25
Hindalco Industries Ltd.	1.25
Wipro Ltd.	1.24
UPL Ltd.	1.23
IndusInd Bank Ltd.	1.21

Data Source: NSE

Out of the 50 companies in the Nifty index, 22 were aggressive stocks with Beta of 1 or above while the balance 28 stocks were defensive stocks with Beta of less than 1. The bottom 8 stocks in the Beta rankings are all from either the healthcare space or the FMCG space, which is hardly surprising; as these stocks normally tend to be non-cyclical and have little or nothing to do with index movement. Adani group stocks emerged as the most aggressive among the Nifty stocks as a business group while the list was dominated by banking, commodities, and IT.

If you look at the high Beta stocks, there are just a handful of stocks in the top 10 stocks in terms of Beta that have also given high returns. For instance, if you look at the top 20 stocks in the Nifty by Beta for February 2024, there are 8 stocks giving negative returns and these are cases of the stock not rewarding the investors for the high beta or the higher risk levels that investors are undertaking by buying these stocks. In fact, there are 2 stocks with double digit negative returns, which fall in the top-20 list of stocks ranked by Beta.

HOW NIFTY STOCKS RANKED ON VOLATILITY IN FEBRUARY 2024

Volatility looks at risk from a more holistic perspective. That is because, beta measures the systematic risk of the stock but ignores the unsystematic risk or the risk that can be technically diversified away. The logic of beta is that the unsystematic risk is diversified away, which may not necessarily be true. Volatility (standard deviation) is a good way to measure total risk of the stock.

Stock Name	Volatility (X)
Bharat Petroleum Corporation Ltd.	3.42
Hindalco Industries Ltd.	2.90
UPL Ltd.	2.80
Coal India Ltd.	2.63
Power Grid Corporation of India Ltd.	2.41
Mahindra & Mahindra Ltd.	2.02
Oil & Natural Gas Corporation Ltd.	1.98
Grasim Industries Ltd.	1.97
Apollo Hospitals Enterprise Ltd.	1.85
Wipro Ltd.	1.83

Data Source: NSE

There are some interesting cues that we get from the volatility rankings of the Nifty stocks for February 2024. Out of the 50 stocks only 6 stock can be classified as high volatile with volatility in excess of 2X. These include BPCL, Hindalco, UPL, Coal India, Power Grid and Mahindra & Mahindra. Ironically, Hindalco and UPL are among the worst performer in terms of returns and that is a classic case of returns not justifying the risk. The others do feature on the top returns list. The top 10 stocks by volatility are a fair mix of stocks across sectors.

It includes 3 PSUs with the rest of them from varied interests. Grasim is a surprise feature in the list as the stock is not known to be too active in the market. However, this volatility could be due to the recent foray of the group into the paints business. In the list of stocks with lowest volatility, again there are no surprises. It is dominated by stocks from FMCG, healthcare and IT stocks. In fact, there are 3 FMCG stocks and 3 healthcare stocks in the bottom list on volatility. Kotak Bank and HDFC Bank also feature in the bottom list.

HOW NIFTY STOCKS RANKED ON R-SQUARED IN FEBRUARY 2024

What is the purpose of looking at R-Squared/ This is an interesting measure which 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 is a purely a measure of how aggressive the stock is with respect to the Nifty. In bullish markets you stick to high beta stocks and in bearish markets you shift to low beta stocks. However, you are not sure if the Beta is a real relationship or it is just a chance relationship with no underlying relational bias. In short; high or low beta could just be a random factor. That gap is captured by the 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 movement explanation to the stock. The linkage here is that Beta is a lot more significant when the R-Squared is also high; because you know for sure that the relationship is not random.

Stock Name	Weightage (%)	Beta (X)	R-Squared (X)
Reliance Industries Ltd.	10.28	1.27	0.47
HDFC Bank Ltd.	10.97	1.27	0.44
Tata Steel Ltd.	1.21	1.25	0.34
Kotak Mahindra Bank Ltd.	2.58	1.03	0.33
JSW Steel Ltd.	0.79	1.10	0.32
ICICI Bank Ltd.	7.68	0.89	0.32
Wipro Ltd.	0.76	1.24	0.31
State Bank of India	2.99	1.18	0.31
UPL Ltd.	0.25	1.23	0.28
Grasim Industries Ltd.	0.84	1.00	0.28

Data Source: NSE

There are hardly any surprises in the above list. Reliance has the highest R-Squared followed by HDFC Bank and SBI. 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. Here if you look at the top 10 stocks by R-Squared, then 9 out of these 10 stocks are also aggressive stocks with beta of more than 1. Again, if you look at the top 10 stocks on R-Squared, 4 of them are banks and 4 are commodities. Which are the low R-Squared stocks? Once again, the bottom list is dominated by stocks from the pharma and the FMCG space, where these stocks have little relation to the Nifty movements. These are also the stock with low levels of Beta.

Finally, we will turn to ranking of top 10 stocks on the Explanation Factor, which is 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
Reliance Industries Ltd.	10.28	1.27	0.47	0.60
HDFC Bank Ltd.	10.97	1.27	0.44	0.56
Tata Steel Ltd.	1.21	1.25	0.34	0.43
Wipro Ltd.	0.76	1.24	0.31	0.38
State Bank of India	2.99	1.18	0.31	0.37
JSW Steel Ltd.	0.79	1.10	0.32	0.35
UPL Ltd.	0.25	1.23	0.28	0.34
Kotak Mahindra Bank Ltd.	2.58	1.03	0.33	0.34
Infosys Ltd.	6.22	1.25	0.26	0.33
Adani Enterprises Ltd.	0.90	2.02	0.16	0.32

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, you obviously are the FMCG and healthcare names, with little explanation coming from market returns.

The month of February 2024 has been positive for the Nifty overall. However, the internal variances have been fairly huge. The risk / return / correlation matrix gives a more granular picture of the leaders and the laggards.