Stock markets in India have continued their momentum and are presently trading on a positive note. Sectoral indices are trading on a positive note with stocks in the realty sector and banking sector witnessing maximum buying interest.

The BSE Sensex is trading up 137 points (up 0.4%), while the NSE Nifty is presently trading up 23 points (up 0.2%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.2%.

The rupee is trading at 68.62 to the US$.

The Sensex hit its 38,000 level for the first time today and is presently trading at 38,024.

Note that the BSE Sensex is up by 11.4% in the current year.

But the real picture can’t be further from the truth. Only 12 stocks are responsible for Sensex touching their lifetime highs. TCS, Infosys, Reliance along with a few other stocks have led to this outperformance.

Sensex Return Skewed by Top 12 StocksThe top 12 stocks have returned 25.5% on an average while the other 19 stocks in the Index have declined by 12% on an average, as can be seen from the chart below:

What has led to this divergence?

As Girish Shetty, Research Analyst at Equitymaster, writes in a recent issue of The 5 Minute WrapUp…

  • Corporate governance issues at mid and small cap companies have led to their corrections from sky-high valuations a year ago.

    Even among Sensex stocks, Tata Motors, Vedanta, and Bharti Airtel have performed poorly due to structural issues in their businesses.

  • What happens when these top 12 stocks fail to meet the market’s expectations?

    Well, there’s a possibility they might take down the other 19 stocks and the index further with them. In such a situation, despite the recent correction, mid and small caps won’t be safe either.

    In the news from global financial markets, China’s annual consumer inflation rate accelerated to 2.1% in July, beating market expectations. The rise here was largely driven by a rise in non-food prices.

    Print Friendly, PDF & Email