The Sensex crossed the 42,000 points mark with ease and over the last one month, has been hitting successive highs, which has been very easy. Mutual Funds and Foreign Portfolio Investors keep buying into the HRITHIK stocks, which keep driving the markets higher, because they have nearly 50 per cent weight in the S&P CNX Nifty.
These HRITHIK Stocks are nothing but HDFC Bank, Reliance Industries, ICICI Bank, TCS, HDFC, Infosys and Kotak Mahindra Bank. Together these 7 stocks have the highest weightage in the Nifty of almost 50 per cent and the remaining 43 stocks, have another 50 per cent.
Just keep buying into these 7 stocks and the markets moves higher automatically, because of their weight. Interestingly, most of these stocks are very close to their 52-week highs. Take a look at the weightage of these stocks as on Dec 31, 2019 in the S&P CNX Nifty.
|Kotak Mahindra Bank||4.49%|
Beginning to see some downward momentum
The HRITHIK stocks are now beginning to see some serious selling pressure. On Monday, Kotak Mahindra Bank dived more than 4 per cent, following a rise in gross non performing assets for the quarter ending Dec 31, 2019. HDFC Bank saw a sharp reaction of more than 2 per cent on higher provisions and Reliance Industries dropped 3 per cent as petchem and refining business disappointed.
These set of stocks have now seen valuations rising significantly and there is almost zero scope for any disappointment as this could drag these stocks lower
Even some of the stocks in this group that include names like Infosys may find the strong momentum fade, as valuations are now looking a tad bit stretched. Even TCS, which reported quarterly numbers, reported absolutely flat net earnings.
What has also been happening is that with the economic slowdown, investors, especially the large institutional investors have been chasing the big names, especially the HRITHIK stocks where there has been growth.
However, should economic growth gather steam, these investors might start seeing value in the broader markets. Our own take is that quality is now beginning to come at a price and even the big investors are unlikely to keep chasing these stocks at any and every price.
Midcap and small cap stocks maybe the next bet
For a few months now, analysts have been suggesting to look at the small and midcap stocks, which had been hammered down last year. Of course, some of these have already seem some sort of recovery. A few largecap stocks from the public sector enterprise space are also looking attractive. Typically, these include even some largecap names like ONGC, GAIL and OIL India, particularly for their dividends.
Stocks like ONGC may end-up offering you a dividend yield of nearly 6 per cent. Interestingly, dividends are tax free upto Rs 10 lakhs, which makes some of these stocks even more attractive.
Clearly, it's time to look beyond some of the HRITHIK stock and focus on some reasonably valued stocks. Growth stocks are coming at a heavy price and valuations, and for the time being the other stocks might offer value as well.