Financial Sector Takes Centrestage in Stock Market - Chart Of The Day 12 December 2017 - Equitymaster

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Financial Sector Takes Centrestage in Stock Market
Dec 12, 2017

The changing fortunes of businesses leave imprints on the broad market indices. Over the past decade, the composition of market index Nifty has materially changed. While the weightage (in terms of market capitalisation) of utilities, energy, and telecom has fallen drastically, sectors such as financial services and consumer discretionary have been the biggest gainers during this period. As a matter of fact, the share of financial services has more than doubled. Presently, it occupies the highest weightage in the Nifty index. Among financial services, retail banks have gained heftier weightage. However, state-run banks have underperformed due to stressed loan books.

This essentially means that Nifty's expensive valuations is the handiwork of a few stocks and their strong performance in earnings and is not broad-sector based. Additionally, the share of financial services in the overall gross value added (GVA) is low. In FY16, financial services accounted for a mere 6% of total GVA at constant prices. This reflects the dichotomy between its contribution to economic growth and the disproportionately huge weightage commanded by it in the equity markets. Until the state-run banks come out of the bad loan mess and start contributing meaningfully to credit growth, Nifty's picture of financialization in the economy may remain distorted.

Data Source: Livemint, Bloomberg, Nomura Research

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