The juiciest and the riskiest Nifty stocks in March 2024

10 Apr 2024 , 09:20 AM

HOW TO LOOK BACK AT NIFTY IN FEBRUARY 2024

For the month of March 2024, Nifty index closed with healthy gains of 1.57%. This is despite the fact that the Nifty has been at lifetime highs. Also, March marked the end of fiscal FY24 and for the year, the Nifty generated 30.71% returns; another fiscal year in which equity large caps got the better of most asset classes. However, these returns do not give us the full picture since these index returns are weighted average returns of 50 stocks with a bias towards the index heavyweights. Behind the 1.57% returns on the Nifty, there are 30 stocks that have given positive returns while 20 stocks have given negative returns.

There are 5 stocks that have given double-digit returns in the month of March 2024 while 13 stocks have given returns in excess of 5%. On the downside, only Infosys fell by more than 10% in the month while a total of 7 stocks by more than 5% in the month of March 2024. Out of these 7 companies that lost more than 5% during March 2024; five were IT companies and 2 were FMCG companies. IT companies faced a lot of pressure after Accenture downgraded its revenue growth guidance for 2024. FMCG companies are still facing the dual overhang of weak rural sales and rising Brent Crude prices.

DID THE NIFTY HEAVYWEIGHTS CHANGE IN MARCH 2024

Between last month and the current month, the weightages were largely the same, except for one change. Bharti Airtel, which saw a sharp rally in the month of March,  saw its relative weightage in the index go up tenth position to eighth position. Weightages on the Nifty are not only based on market cap but also on the free float. 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. Similarly, in the case of TCS, Tata Sons owns more than 70%, which gives it lower weight than Infosys. Here are top 10 Nifty weightage stocks.

Stock Name	Weightage (%)
HDFC Bank Ltd.	11.07
Reliance Industries Ltd.	10.22
ICICI Bank Ltd.	7.80
Infosys Ltd.	5.44
Larsen & Toubro Ltd.	4.52
Tata Consultancy Services Ltd.	3.99
ITC Ltd.	3.86
Bharti Airtel Ltd.	3.25
Axis Bank Ltd.	3.02
State Bank of India	2.93

Data Source: NSE

Out of the Nifty-50 stocks, 2 stocks have double digit weightage viz. HDFC Bank and Reliance Industries. The top 10 stocks account for 56.10% of the overall Nifty weight while the top-20 stocks on the Nifty accounted for 74.88% 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.

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; while if you look at the top-30 then 3 more PSU stocks viz. ONGC, Powergrid and Coal India also feature.

WHICH NIFTY STOCKS GAVE THE BEST RETURNS IN MARCH 2024

For the month of March 2024, the Nifty gave returns of 1.57%. The table below captures the top 10 stocks in March 2024 in terms of Nifty returns in absolute terms. These returns are just point to point returns (and not annualized).

Stock Name	MOM Returns (%)
Bajaj Auto Ltd.	15.66
Maruti Suzuki India Ltd.	11.62
Bajaj Finance Ltd.	11.55
Hindalco Industries Ltd.	11.19
Tata Steel Ltd.	10.65
Bharti Airtel Ltd.	9.37
HDFC Life Insurance Company Ltd.	8.82
Larsen & Toubro Ltd.	8.23
Hero MotoCorp Ltd.	6.68
Eicher Motors Ltd.	5.98

Data Source: NSE

The top-10 is dominated by 4 auto stocks, largely on the back of interest rate cut expectations. How is the sectoral mix of top 20 stocks on returns? There were 6 financials (BFSI) and 5 auto stocks in the top 20. Interestingly, with the hopes of a revival in metals demand, 3 metal stocks also appeared in this list viz. Hindalco, Tata Steel and JSW Steel. Among others, ITC and Titan were the 2 FMCG stocks in the list while companies like Bharti Airtel, Larsen & Toubro and Apollo Hospitals were the sole representatives of their respective sectors in the top-20 in March 2024. It was not a great month for PSUs, with not a single PSU featuring in the top-20 by returns.

HOW NIFTY STOCKS RANKED ON BETA IN MARCH 2024

Beta measures of systematic risk of the stock vis-à-vis the index (Nifty). Beta is the risk that cannot be diversified away. 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 as a proportion of 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 above 1 are aggressive stocks while stocks with Beta below 1 are defensive stocks.

Stock Name	Beta (X)
Adani Enterprises Ltd.	1.64
Tata Steel Ltd.	1.47
Adani Ports and Special Economic Zone Ltd.	1.44
Hindalco Industries Ltd.	1.30
Coal India Ltd.	1.29
Wipro Ltd.	1.26
HDFC Bank Ltd.	1.24
JSW Steel Ltd.	1.23
NTPC Ltd.	1.23
Tech Mahindra Ltd.	1.23

Data Source: NSE

Out of the 50 companies in the Nifty index, 23 were aggressive stocks with Beta of 1 or above while the balance 27 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 Bharti Airtel 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 Tata Steel and Hindalco that have justified high beta with high returns. In the top 20 beta stocks, there are 8 stocks giving negative returns. IT sector prominently stood out in the month of March 2024 as a sector with negative returns despite relatively higher Beta.

RANKING NIFTY STOCKS ON VOLATILITY FOR MARCH 2024

If Beta looks only systematic risk, volatility looks at overall risk i.e. systematic and unsystematic risk combined. The logic of using beta is that the unsystematic risk is diversified away, which may not necessarily be true in most cases. 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 March 2024.

Stock Name	Volatility (X)
Tata Steel Ltd.	2.87
Adani Enterprises Ltd.	2.46
Power Grid Corporation of India Ltd.	2.33
Adani Ports and Special Economic Zone Ltd.	2.27
Bharat Petroleum Corporation Ltd.	2.27
Coal India Ltd.	2.22
NTPC Ltd.	2.16
Oil & Natural Gas Corporation Ltd.	2.03
Tata Motors Ltd.	2.01
Mahindra & Mahindra Ltd.	2.00

Data Source: NSE

There are some interesting cues that we get from the volatility rankings of the Nifty stocks for March 2024. Out of the 50 stocks only 10 stock can be classified as highly volatile with volatility of 2X or more. These include Tata Steel, Adani Enterprises, Power Grid, Adani Ports, BPCL, Coal India, NTPC, ONGC, Tata Motors, and M&M. Ironically, the PSU stocks are nowhere to be seen in the top 20 return rankings but are dominating the top-10 list in terms of volatility. Clearing, the return to risk ratio is not too favourable for these 5 PSUs.

Most of the PSU stocks in March 2024 may have seen high volatility and low returns for a reason. Firstly, being the end of the fiscal, there was a rush to take profits off the table and most of the PSUs were extremely profitable in FY24. Most investors tried to monetize their gains on these PSUs to offset some of their loss farming needs. This led to elevated levels of volatility in these PSU stocks and the selling could explain the returns lagging for PSUs.

HOW NIFTY STOCKS RANKED ON R-SQUARED IN MARCH 2024

What is the idea of looking at R-Squared? This 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 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. What you do not know is whether the Beta reflects a real dependence relationship or is just a chance or casual relationship. This gap is filled by this measure called 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. Investors must appreciate that the Beta is a lot more significant and  relevant when the 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.	10.22	1.20	0.43
HDFC Bank Ltd.	11.07	1.24	0.41
Tata Steel Ltd.	1.31	1.47	0.36
JSW Steel Ltd.	0.80	1.23	0.34
Grasim Industries Ltd.	0.86	1.11	0.31
Kotak Mahindra Bank Ltd.	2.67	1.02	0.31
Wipro Ltd.	0.69	1.26	0.29
ICICI Bank Ltd.	7.80	0.82	0.28
State Bank of India	2.93	1.07	0.26
Tech Mahindra Ltd.	0.81	1.23	0.26

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. Again, if you look at the top 10 stocks on R-Squared, 4 of them are banks and 2 are commodities and 2 are IT companies. Which are the low R-Squared stocks? Once again, the bottom list is dominated by stocks from the pharma space, where these stocks have little relation to the Nifty movements. These stocks also offer good diversification opportunities in an overall 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.	1.31	1.47	0.36	0.53
Reliance Industries Ltd.	10.22	1.20	0.43	0.52
HDFC Bank Ltd.	11.07	1.24	0.41	0.51
JSW Steel Ltd.	0.80	1.23	0.34	0.42
Wipro Ltd.	0.69	1.26	0.29	0.37
Grasim Industries Ltd.	0.86	1.11	0.31	0.34
Tech Mahindra Ltd.	0.81	1.23	0.26	0.32
Kotak Mahindra Bank Ltd.	2.67	1.02	0.31	0.32
NTPC Ltd.	1.62	1.23	0.24	0.30
State Bank of India	2.93	1.07	0.26	0.28

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. In a number of cases, Bajaj Auto has emerged as a classic defensive bet to diversify portfolios.

Three trends emerged in the month of March 2024. Firstly, returns have been better with substantial number of outperformers. Secondly, PSUs which led the returns story in February are largely missing in March 2024. Lastly, Auto stocks emerged in the month as a log risk high return play for the investors.