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The run up to 20K
Wed, 27 Oct Pre-Open

The BSE Sensex has moved up 21% from 16,700 to 20,000 in the past twelve months. During this while, most of its stock components have seen their valuations multiply. However at look at some of the sectoral indices suggests that the gains have not been very broad based.

The reason for the wide gap in sector performances can be unearthed if one looks at the underlying factors affecting their fundamentals. Let us first take the sectors that have led the gains in the benchmark indices so far.

Sectors like consumer durables and automobiles have reaped the benefit of the resilience of the Indian economy to global shocks. A growing population of middle class earning and saving more gave a boost to the consumption of these commodities. Add to that the fact that low input prices and benign interest rates made selling the products that much more profitable. Banks too cashed in on accumulation of large pools of low cost deposits to improve their margins.

The healthcare and smallcap spaces were examples of investors finding attractive long term value and investing heavily into them. The fact that most large caps had already witnessed substantial FII interest got the incremental inflows to companies with lesser market capitalization.

The leaders and laggards over the past year
Indices Change (% YoY)
BSE Consumer Durables Index 81.9
BSE Auto Index 52.7
BSE Healthcare Index 47.4
BSE Small-Cap Index 43.0
BSE Bankex 40.9
BSE Realty Index -11.2
BSE Power Index 4.1
BSE Oil & Gas Index 12.1
BSE Metal Index 12.9
BSE IPO Index 13.2
Data source: Prowess

On the other hand, the realty index had investors being ‘once bitten twice shy’. Concerns over realty prices being in the bubble territory and the huge debt burden kept investors away from repeating the mistake made in 2007, 2008.

Power, metal and oil and gas sectors again failed to evince much interest due to regulatory bottlenecks and execution risks. Despite having considerable long term potential given India’s ambitious infrastructure growth plans, investor interest has eluded these sectors.

Interestingly, the performance of the IPO index too is something to write home about. Given the hype surrounding some of the recent offerings, investors would do well to take note of this.

Valuations across most sectors are currently close to historical peaks. Hence, it is pertinent for investors to ensure that their portfolios are not tilted towards stocks or sectors offering little value from here.

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Feb 23, 2018 (Close)