Bluechips have propelled the domestic market from $4 trillion to $5 trillion. On an absolute basis, the top 100 companies have accounted for 63 per cent of the gains (Rs 51 trillion out of Rs 81 trillion), while companies beyond the top 100 have accounted for 37 per cent of the gains (Rs 30 trillion out of Rs 81 trillion). This contrasts with what happened during the market’s journey from $3 trillion to $4 trillion when the market cap pooled in by the top 100 and those beyond 100 was almost equal in absolute terms.
Interestingly, in percentage terms, the growth in both top 100 and beyond 100 universes and also the overall market cap from $4 trillion to $5 trillion (in rupee terms) is similar at 25 per cent each. During the 55 per cent jump in market cap (in rupee terms) from $3 trillion to $5 trillion, the market value of the beyond 100 pack had almost doubled, while the top 100 had underperformed with just 41 per cent growth.
In the past six months, the outperformance of small- and medium-sized companies vis-à-vis large-caps has narrowed compared to the preceding 18 months. Market experts said this is on the back of the valuation safety provided by larger companies.
“Relative to the broader market, large-caps are their cheapest in a decade. The undervaluation of large caps presents an opportunity, and Indian and overseas investors are trying to seize that opportunity. Getting moderate valuations in large caps in a bull market is rare. There are triggers for large-caps to regain their pre-eminence with election results around the corner and as the rate-cutting cycle kicks in, it will drive the large-cap profitability further,” said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers.
Traditionally, the top 100 stocks have accounted for over two-thirds of India’s market cap. Their preponderance has waned as their contribution now to the overall market cap is less than 64 per cent compared to over 70 per cent when the market first hit $1 trillion, $2 trillion, and $3 trillion.
“The large-caps have been playing catch-up post the close to 70-80 per cent rally in the small and micro-caps during calendar 2023. No wonder, the contribution from the top 100 stocks has gone up in the journey from the $4 trillion to the $5 trillion mark. Moreover, a lot of the leaders of the recent rally are heavyweights from the PSU pack such as State Bank of India, Coal India, ONGC, BPCL, and HPCL, which are part of the top 100 universe,” said Gaurav Dua, SVP, head of capital market strategy, Sharekhan by BNP Paribas.
Experts said greater institutional flows coming into the market are also supportive of large-caps.
“Domestic institutional investors have been big participants in the latest market surge. A lot of flows have come into the market via exchange-traded funds. More investments are likely to gravitate towards large caps in the near future, considering an event risk is coming up in a few weeks. Even if markets don’t rally after election results, large-caps are a safer place than mid or small-caps. Retail investors too should refrain from making disproportionately high allocations to mid- and small-caps,” said UR Bhat, co-founder of Alphaniti Fintech.
(with inputs from Mayank Patwardhan)
First Published: May 22 2024 | 9:01 PM IST