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New sectors taking charge as market seeks to rebound

NEW DELHI: Even though the benchmark indices have largely recovered from their Januray lows, most sectors that led the charts between February 2016 and January 2018 – the phase during which Sensex rallied 58 per cent to 36,450 from 23,000 –are not finding favour with investors.

They are now ruling at the bottom of the performance charts, making way for a comeback by those sectors which missed the earlier rally, data showed.

The BSE Realty index has fallen 22 per cent since January, emerging best performer among all sectors between February 2016 and January 2018 with a 154 per cent surge.

PSU stocks, too, have gone off investor radar. The BSE PSU index has slipped 21 per cent in the recent fall, compared with a 65 per cent rise over the preceding 29 months.

The BSE Metal index, the third biggest gainer (up 148 per cent during the bull run), is today the third biggest loser since January.

Other sectoral indices – including those representing consumer durables, oil & gas and capital goods –have fallen between 15-17 per cent since January, after nearly doubling during the bullish phase.

BSE IT index has since emerged the new sectoral leader, gaining 9 per cent since Sensex hit its record high on January 29. A sharp drop in rupee value against the dollar has been one of the triggers helping the export-led sector. The index had risen 24 per cent during the 29-month period, but was among the worst index performers.

FMCG and Healthcare indices, which did not perform relatively well in that phase, are back in the limelight now.

Every bull phase of the Indian stock market since the economic liberalisation of 1991 has produced a new sectoral leader.

“In 1992, the entire market was led by Harshad Mehta. Cement stocks got rerated as there were hopes that the liberal rules would pave the way for more infrastructure development. But stocks like ACC, Apollo Tyres, Tata Steel, which had become market darlings, failed miserably thereafter,” recalls Basant Maheshwari, a market veteran.

A study by Kotak Institutional Equities suggests in the long run leaders of the one bull market have always struggled in the next.

The brokerage compared the performance of the top performers of last two bull markets in 1998-99 and 2006-07 in percentage terms with their performance in the subsequent one-year, three- year and 5-year periods.

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However, individual stocks may continue to do well in successive bull runs depending on the quality of the businesses, it said.

The brokerage noted that Infosys, the biggest contributor to the 1998-99 bull market, performed poorly until 2004 and periodically after that, even though it has been giving robust returns of late.

RIL, the biggest contributor to the 2005-07 bull market, struggled during 2008-16 but has since been a strong performer over the past 1.5 years.

“It has been a large contributor to the ongoing rally (June 2016-June 2018). Of course, Infosys has returned a more modest 10 per cent return CAGR since its 1999 peak while RIL has given a paltry 3 per cent return CAGR since its 2007 peak. Timing of investment does matter, although good stocks deliver consistent returns over most periods,” the brokerage said.

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