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A Very Small Group of Stocks Captured All the Gains
Jan 1, 2020


Let's look at the Indian stock markets through the rearview mirror.

I'm not going to look at 2019 in isolation because 2019 was mostly an escalation of a trend that started in 2018.

As I've explained on several occasions, the Indian stock markets have witnessed a starkly polarised situation since 2018, after the uninterrupted bull rally of 2017 entered a period of correction.

But while the Sensex recovered from the correction and went on to hitting new life-time highs, the broader markets - predominantly the small and midcap stocks -haven't recovered much.

I have been talking about this trend since a long time. But now, I have even more elaborate data to show you how deep this trend has been.

I pulled out data on 1,638 companies listed on the NSE.

And here's what I found.

Between 29 December 2017 and 30 December 2019, just 246 companies have witnessed gains. Together, these 246 companies added Rs 29.8 trillion worth of market capitalisation.

In other words, 1,392 companies are below the levels they traded at the end of December 2017. Together, these 1,392 companies lost Rs 28.6 trillion worth of market capitalisation.

So, you see the money has literally shifted from one place to another.

Even among the 246 companies that witnessed gains, the major chunk was captured by just a small list of companies.

Look at this table...

Stocks with Gains (Nos) 246
Total Gains* (Rs trillion) 29.8
Gains by Top 5 Stocks (Rs trillion) 12.2
Gains by Top 10 Stocks (Rs trillion) 17.7
Gains by Top 30 Stocks (Rs trillion) 24.2
Gains by Top 50 Stocks (Rs trillion) 26.3
Gains by Top 100 Stocks (Rs trillion) 28.9
Data Source: Ace Equity
*Change in market capitalisation from 29 Dec 2017 to 30 Dec 2019

Let's see how this looks in a chart...

As you can see, the top 5 companies captured 41% of all the gains in market capitalisation over the last two years. In fact, the top 30 stocks captured more than 80% of the gains.

In short, money has been rushing to safety, into large, liquid, bluechips stocks.

It hardly comes as a surprise then that more and more money has been choosing "safety" and flocking into the largest of companies. It indicates that investors are risk-averse.

For many investors, the prolonged agony of seeing their portfolios in the red is a strong enough reason to switch their investing strategy and go where all the big money is going.

After all, we're all wired to find safety in numbers...in doing what most other people do. Then why take a contrarian stand and look like a fool?

But the question is - how long can this trend last?

Will these stocks continue to be safe havens even in 2020? Will they provide the kind of returns that they did since 2018?

I'm not saying you should completely avoid the popular bluechip stocks and that they're set for a correction. Maybe they won't correct for a prolonged period.

But when everyone starts thinking the same way, and investing the same way, you can't expect to make extraordinary gains.

So, if you're really aiming to make outsized gains, then I don't think that's the place to look.

So where should you look?

I would say that you can consider the recommendations made by our Safe Stocks guru, Tanushree Banerjee.

She has picked her top 7 stocks for 2020.

In fact, Tanushree tells me, she has an even better recommendation lined up. She will write to you about it tomorrow.

I wish you a prosperous year ahead!

Data Source: ACE Equity

This Chart Of The Day was published in The 5 Minute WrapUp - What's Your Investing Resolution for 2020?

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