Renewed buying in large cap IT, pvt banks pushes Sensex to record high
Divergence between large cap and mid-cap widened in 2018. Mid-cap and small cap indices still down 15-20% from top

Investors seem to be getting risk averse as they move to frontline stocks on the back of a possible escalation in trade war between the US and China. High oil prices are another worry point. While mid and small cap stocks face a rout, select buying in frontline stocks in sectors like auto, IT and consumption has lifted the Sensex to its record high level.

BSE Sensex on Thursday hit a new high of 36,699.53 points, surpassing the January 29 high of 36,443.98.

After witnessing some profit-booking, the key index closed at new all-time high of 36,548.41, up 282.48 points or 0.78 per cent from its previous close. NSE Nifty 50 crossed the 11,000-mark after a long interval to settle at 11,023.20, up 74.90 points or 0.68 per cent. Good Q1 earnings by Sensex constituents like TCS boosted the sentiment. According to analysts, the rally was mainly led by a clutch of stocks. The BSE Sensex has climbed over 12 per cent to hit a record high of 36,533 from its low of 32,483 points, registered on March 23, 2018. Auto, IT, consumption stocks led in 1,063-point Sensex rally since June 5. Among individual stocks, TCS, Kotak Mahindra Bank, HUL, YES Bank, Mahindra & Mahindra, Asian Paints and HDFC Bank from the Sensex have been the top gainers, rallying by 16-34 per cent.

On Thursday, Reliance Industries led from front in propelling the index to all-time high along with the HDFC twins. Reliance closed up 4.42 per cent at a new all-time high of Rs 1,082.20 apiece.

Manish Gunwani, CIO, equity investments, Reliance Nippon Asset Management, said: “While most of the emerging and developed markets are struggling, the Indian market has successfully climbed the wall of worry. This reflects the resilience of our market and an inherent faith in the superior long-term fundamental story. However, over the last six months, broader market has materially underperformed the Sensex. The extent of underperformance of the mid and small cap indices is near extreme. As some of the recent concerns starts to diminish at the margin, the broader market should start performing owing to improved earnings performance.”

The divergence between large cap and mid-cap has widened in 2018. Mid-cap and small cap indices are still down 15-20 per cent from the top. Even within Nifty, select high quality stocks with earnings visibility are driving the index with TCS, HDFC Bank, HUL, Kotak Mahindra Bank, Reliance being the key outperformers. Gautam Duggad, head of research, Motilal Oswal Institutional Equities, said: “We expect the market to remain in a tight range albeit with higher volatility in 2018 given the busy political calendar ahead. Our relative preference stays with large caps as mid-caps are still trading at premium to large caps.”

“We like consumption, auto, private financials and IT,” he further said.

Rusmik Oza, senior vice-president (head of PCG Research) at Kotak Securities, said: “The last five hundred points rally in Nifty has been led by eight stocks (TCS, Reliance Ind., HDFC twins, Kotak Mahindra Bank, Infosys, HUL & Maruti Suzuki). These stocks account for 44 per cent of Nifty-50 market cap and are up by 10 per cent on an average since May 23, when Nifty was below 10,500 level.