Stocks: Beaten-down blue chips could be first to rebound

Mumbai: In the past eight trading days, the Sensex has run up 5,160 points and the Nifty jumped 1,500 points, erasing most of the losses in 2022, but the optimism in the stock benchmarks is yet to rub off on the broader market. About 63% of the constituents on the NSE 200 index have underperformed the benchmark since the beginning of the year. While the Nifty index is still half a percent down so far this year, about 125 of the NSE200 stocks are down between 1% and 50%.

Stocks such as HDFC Life, Lupin, Dalmia Bharat, Godrej Industries, ICICI Securities, Tata Communications, Godrej Consumer, Gujarat Gas and Jubilant Foodworks, among others, are still down over 20% so far this year. Dr. Reddy’s, Ambuja Cement, Info Edge, Havells, Tech Mahindra, Wipro, Godrej Properties and UltraTech Cement are down over 15%. Most of these stocks are widely owned by foreign institutional investors, and relentless selling in the past four months resulted in their underperformance.

Analysts expect this trend to reverse once FII selling abates and the focus shifts back to quality companies that could benefit from the normalization of economic activity.

“In the future, the market is expected to trend on a stock-to-stock basis, supporting the performance of large-caps while mid- and small-caps are expected to underperform,” said Vinod Nair, head of research Geojit Financial Services.

“The trend is expected to change due to improvement in the companies’ risk profile as a result of normalization in economic growth and reduction in investors’ risk appetite, risk-off.”