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The juiciest and the riskiest Nifty stocks in January 2024

26 Mar 2024 , 03:16 PM

HOW TO LOOK BACK AT NIFTY IN JANUARY 2024

For the month of January 2024, the Nifty was as flat as flat could be. It closed with minor losses of just about 0.02%, which is almost insignificant. However, the returns normally do not tell us the full picture. For instance, the 50 stocks in the Nifty itself may have huge variations in returns with a liberal mix of positive and negative returns. In addition, there are other factors at play. It is not just the returns on the Nifty that matter, but the returns per unit of risk. That is measured by the volatility and Beta. In short, it is not just about how much returns the fund generates, but how much returns it generates per  unit of risk. The other aspect is how much of the returns of each stock are explained by movements in the index and how much is explained by individual movements. We look at risk from two levels; the Beta for systematic risk and volatility for overall risk.

UNDERSTANDING NIFTY WEIGHTAGES IN JANUARY 2024

The Nifty is a free float weighted index. That means, greater the free float, greater is the weight of the index. That is why Infosys has a higher weightage in the Nifty compared to TCS and ITC has a higher weightage in the Nifty compared to Hindustan Unilever. Here are the top 10 Nifty stocks by their weightage in the Nifty index.

Stock Name

Weightage (%)

HDFC Bank Ltd.

11.57

Reliance Industries Ltd.

10.16

ICICI Bank Ltd.

7.59

Infosys Ltd.

6.24

Larsen & Toubro Ltd.

4.33

ITC Ltd.

4.12

Tata Consultancy Services Ltd.

4.07

Bharti Airtel Ltd.

3.12

Axis Bank Ltd.

3.12

Kotak Mahindra Bank Ltd.

2.83

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, there are 2 stocks with double digit weightage viz. HDFC Bank and Reliance Industries. The top 10 stocks account for 57.15% of the overall Nifty weight while the top-20 stocks on the Nifty accounted for 75.28% of the Nifty weightage. A total of 24 out of the 50 stocks in the Nifty had a weight of under 1. 

If you look at the top 10 list, 4 out of these 10 stocks are banks 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 JANUARY 2024

The Nifty index, overall, may have given flat returns for January 2024, but that glosses over the variation in returns. The table below captures the top 10 stocks in January 2024 in terms of Nifty returns in absolute terms. These returns have not been annualized

Stock Name

MOM Returns (%)

Oil & Natural Gas Corporation Ltd.

23.02

Adani Ports and Special Economic Zone Ltd.

17.89

Bharti Airtel Ltd.

13.42

Tata Motors Ltd.

13.37

Bajaj Auto Ltd.

12.80

Sun Pharmaceutical Industries Ltd.

12.62

Hero MotoCorp Ltd.

11.64

Bharat Petroleum Corporation Ltd.

11.47

Apollo Hospitals Enterprise Ltd.

11.38

Reliance Industries Ltd.

10.38

Data Source: NSE

For an index that has given flat returns in January 2024, there are vast variations in returns. Out of the 50 companies in the Nifty index, 25 gave positive returns and 25 gave negative returns. A total of 11 out of the Nifty 50 stocks gave double digit positive returns in January 2024 while 17 stocks gave returns of more than 5%. On the downside, 4 stocks gave double digit negative returns while 12 stocks lost more than 5% during the month.

The top 10 Nifty stocks by returns in January 2024 was dominated by 3 auto stocks, 3 oil & gas stocks and 2 healthcare stocks. We have included Reliance Industries as an oil stocks due to the predominance of refining in sales. On the downside, HDFC Bank was the worst performer and the other stocks that fell more than 10% in January 2024 included HDFC Life, Asian Paints and LTI Mindtree.

HOW NIFTY STOCKS RANKED ON BETA IN JANUARY 2024

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. Stocks with Beta of above 1 are called aggressive stocks while stocks with Beta of below 1 are called defensive stocks.

Stock Name

Beta (X)

Adani Enterprises Ltd.

2.46

Adani Ports and Special Economic Zone Ltd.

1.64

Hindalco Industries Ltd.

1.33

HDFC Bank Ltd.

1.30

Infosys Ltd.

1.29

State Bank of India

1.26

Tata Steel Ltd.

1.24

UPL Ltd.

1.20

IndusInd Bank Ltd.

1.18

Reliance Industries Ltd.

1.17

Data Source: NSE

As stated earlier, the Nifty may have a Beta of 1, but in reality there are wide variations. Out of the 50 companies in the Nifty index, 21 were aggressive stocks with Beta of 1 or above while the balance 29 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. These stocks tend to be non-cyclical and have little or nothing to do with the economics of the index movement. Adani group stocks emerged as the most aggressive among the Nifty stocks.

What is interesting is that commodities and financials dominate the high beta list on the Nifty. In fact, 60% of the high beta names on the top beta list are either from the banking space or the commodities space. Normally, in a bullish market, the investors tend to gravitate towards a high beta portfolio. UPL was the only surprise in the top beta list, but that could be more due to the volatility in the stock in recent months on account of internal issues with the company and also the downcycle in the global specialty chemicals industry.

HOW NIFTY STOCKS RANKED ON VOLATILITY IN JANUARY 2024

If beta measures the systematic risk of the stock, it ignores the unsystematic risk or the risk that can be technically diversified away. The logic in using beta is that the unsystematic risk is diversified away, which may not necessarily be the case in reality. Hence an alternative is to look at the total risk or overall risk, which is measured by the volatility or the standard deviation of returns. The table below ranks the stocks with the highest volatility.

Stock Name

Volatility (X)

LTI Mindtree Ltd.

2.75

Oil & Natural Gas Corporation Ltd.

2.66

Coal India Ltd.

2.38

HDFC Bank Ltd.

2.20

Tech Mahindra Ltd.

2.19

Cipla Ltd.

2.17

Adani Ports and Special Economic Zone Ltd.

2.13

Infosys Ltd.

2.05

IndusInd Bank Ltd.

2.03

Wipro Ltd.

2.00

Data Source: NSE

Before get into the most volatile and the least volatile stocks, there is an important difference between Beta and Volatility, although both are measures of risk. The beta is with reference to the index while the volatility is with reference to the volatility in the price of the stock. In the above case, the stock with the highest volatility means that the stock prices during the month had the tendency to wildly fluctuate away from the average. Normally, volatility is measured by standard deviation and seen as a good approximation of total risk of the stock in the market.

What do we read from the ranking on volatility of Nifty stocks in January 2024? What is the trend you find in the top 10 Nifty companies by volatility? Interestingly, there are 2 PSU stocks in the list, which can be attributed to the sharp rally in PSU stocks in January. If you look at the industry mix of high volatility stocks, then 4 out of the 10 most volatile stocks are from the IT sector; viz, LTI Mindtree, Tech Mahindra, Infosys, and Wipro. IT companies have been seeing bouts of volatility in the midst of global tech spending uncertainty, especially after the latest quarter results. There are also 2 banks in the list, but Cipla is a surprise addition to the list since pharma stock are not known to be volatile. However, this could more due to the promoter stake sell-off talks doing the rounds on the stock of late.

HOW NIFTY STOCKS RANKED ON R-SQUARED IN JANUARY 2024

R-Squared 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 measure of how aggressive the stock with respective to the Nifty. In bullish markets you stick to high beat stocks and in bearish markets you shift to low beta stocks. However, there is a big question that arises. Is the Beta actually showing a relationship with the Nifty or is it just a random occurrence that cannot be explained. That gap is captured by the R-Squared. Normally, the average R-Squared of the Nifty is around 0.20, so any R-Squared figure of 0.40 to 0.50 shows a significant Nifty movement explanation to the stock. Where the R-Squared is high, the beta becomes more meaningful as a measure of systematic risk. That is how the beta and R-Squared link up.

Stock Name Weightage (%) Beta (X) R-Squared (X)
Reliance Industries Ltd.

10.16

1.17

0.49

HDFC Bank Ltd.

11.57

1.30

0.47

State Bank of India

2.59

1.26

0.38

Grasim Industries Ltd.

0.84

1.00

0.34

Tata Steel Ltd.

1.17

1.24

0.33

JSW Steel Ltd.

0.82

1.12

0.33

UPL Ltd.

0.28

1.20

0.32

Kotak Mahindra Bank Ltd.

2.83

0.98

0.32

Wipro Ltd.

0.71

1.17

0.31

ICICI Bank Ltd.

7.59

0.84

0.31

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. 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. Interestingly, most of these stocks also have very low Beta levels.

Finally, we will look at a ranking of the 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
HDFC Bank Ltd.

11.57

1.30

0.47

0.61

Reliance Industries Ltd.

10.16

1.17

0.49

0.57

State Bank of India

2.59

1.26

0.38

0.48

Tata Steel Ltd.

1.17

1.24

0.33

0.41

UPL Ltd.

0.28

1.20

0.32

0.38

JSW Steel Ltd.

0.82

1.12

0.33

0.37

Wipro Ltd.

0.71

1.17

0.31

0.36

Infosys Ltd.

6.24

1.29

0.28

0.36

Hindalco Industries Ltd.

0.89

1.33

0.27

0.36

Grasim Industries Ltd.

0.84

1.00

0.34

0.34

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 have the FMCG and the healthcare names, with little explanation of the stock returns coming from the market returns.

The month of January 2024 has been a flat show by the Nifty overall. However, the internal variances have been fairly huge. That just goes to show the rising risk levels in the market as it scales new highs.

Related Tags

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