Sensex Dominoes Remain Firm Even as Smallcaps Tumble - Chart Of The Day 12 June 2018 - Equitymaster

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Sensex Dominoes Remain Firm Even as Smallcaps Tumble
Jun 12, 2018

Long time Wrapup readers will remember that in November 2017, exactly two months before markets started correcting, I wrote about the Sensex dominoes.

It was about the eight stocks that accounted for a bulk of the gains in Sensex market cap since 2014.

Here is what I wrote...

  • The 30 stocks in BSE Sensex gained a total of 20.8 trillion in their market capitalisation over the past three years. But of this, gains of nearly 14.5 trillion (70%) could be attributed to just the top eight stocks in the index. And if these stocks were to move back to 2014 valuations, they could bring the benchmark index about 30% lower.

    That is, Sensex could revisit 23,000, a level it saw in May 2014 and again in February 2016.

Now, even as mid and small-cap stocks have been testing 52-week lows, over past seven months, the Sensex has actually gained 6%. All thanks to the 'domino stocks' that have stayed firm. Other than SBI, the other seven stocks have gained between 3% and 28% during this period.

Except for SBI, which has had NPA problems, the other business seem to be on a sound footing for now.

However, we must not forget that most of these businesses are vulnerable to macro factors like interest rates, exchange rates, and oil prices. And history shows that whenever such factors have gone to extremes, they have had a big impact on stocks.

2000 2008 2018
Interest rate (%) 11.2 7.0 6.25
Crude Oil (US$/bbl) 25 145 65
Exchange Rates (Rs/$) 42 48 67
Data source: Trading Economics

So even though the volatility in the Sensex may have hardly resembled that in the BSE 500 or the BSE Smallcap index, so far, a 30% correction in the Sensex is not a foregone possibility.

This Chart Of The Day was published in The 5 Minute WrapUp - Forget Trump and Kim in Singapore. A Meeting in this Tiny Country Could Soon Rock the Markets. Be Prepared...

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