Rally in the Sensex not broad-based

Mumbai: If one thought that the rally in the Sensex from 8000 levels was broad-based then they have a surprise in store for them.

Even if the Sensex has gained more than 29 per cent between the 8000 levels hit on September 8, 2005 and closing level of 10415.61 on July 25, 2006 it is only a handful of stocks with high weights assigned to them that led the 2363-point rally.

Interestingly, three of these Sensex stocks are available at a hefty discount of more than 10 per cent to their 8000 levels.

In the meanwhile, the 30-stock benchmark BSE Sensex has gained 29 per cent with 16 stocks outperforming the Sensex.

Stocks like Ranbaxy (down 34 per cent compared to their 8000 levels), Reliance Energy (down 24 per cent) and banking major SBI (down 10.78 per cent) have been a drag on the Sensex.

However, the drag is not significant because of low weights of 1.42, 0.68 and 2.7 respectively assigned to them.

Company

Price (Rs) as on

Gain/Loss (%)

Weightage

-

25/07/2006

08/09/2005

-

-

ACC

820

484.55

69.23

1.64

Dr Reddy's

1296.05

770.15

68.29

1.14

BHEL

1828.35

1093.65

67.18

2.39

Reliance

987.3

600.37

64.45

11.55

Bajaj Auto

2490.25

1535.85

62.14

2.69

L&T

2116.05

1327.5

59.40

4.04

Grasim

1989.75

1302.55

52.76

2.23

Cipla

223.1

147.44

51.32

1.59

Maruti Udyog

739.9

501.85

47.43

1.3

Guj Ambuja

103.7

70.9

46.26

1.72

HLL

234.35

166.45

40.79

3.94

Tata Motors

701.65

510.85

37.35

2.46

Satyam

731

532.8

37.20

3.27

ITC

163.85

121.55

34.80

7.06

Infosys

1610.2

1210.98

32.97

10.88

TCS

1845.65

1404.1

31.45

2.76

Wipro

469.7

373.2

25.86

2.05

Tata Steel

494.95

407.75

21.39

3.14

HDFC

1097.3

937.05

17.10

3.93

HDFC Bank

763.9

655.8

16.48

2.93

Hindalco

157.75

137

15.15

2.09

Bharti Airtel

369.3

330.3

11.81

3.74

ONGC

1093.65

993.25

10.11

3.57

NTPC

110.6

103.05

7.33

2.16

ICICI Bank

541.1

505.95

6.95

7.36

Hero Honda

711.4

701.05

1.48

1.08

SBI

746.9

837.15

-10.78

2.7

REL

447.7

589

-23.99

0.68

Ranbaxy

356.35

540.25

-34.04

1.42

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Two high-weighted stocks like Reliance and Infosys together notched up more than 1000 points, that is 42 per cent of the gains during the last 10 months indicating that it is only a handful of index stocks that are contributing to the rally.

"The Sensex rally is not broad-based and it is only stocks like Reliance and those belonging to the IT sector like Infosys, Wipro, TCS and Satyam that have led the rally," says investment advisor S P Tulsian.

"Stocks that have outperformed the Sensex in this duration are very much responsible for the more than 2000-point jump in the benchmark index," he adds.

While Reliance has been assigned a weight of 11.55 Infosys is the second highly weighted stock at 10.88.

What this means is a 1 per cent rise in Reliance leads to a gain of 11.55 points on the Sensex. Similarly, if Infosys gains one percent it contributes 10.88 points to the benchmark.

Reliance gained 64.45 per cent and Infosys gained 33 per cent between September last year and till July 25 this year.

Other high weighted stocks that have gained significantly are ITC (up 34.8 per cent), L&T (up 59.4 per cent), HLL (up 40.79 per cent), Satyam (37.2 per cent).

Though BHEL and Grasim has gained 67 per cent and 52.76 per cent respectively, their contribution to the total Sensex gain was low because of low weights of 2.39 and 2.23 assigned to them.

Even the best performer ACC with 69.23 per cent gains did not contribute much to the Sensex because of its small weight of 1.64 point. Dr Reddy’s (up 68.29 per cent) was also a non-contributor with a weight of 1.14.

"In effect stocks that have outperformed the Sensex were responsible for the Sensex rally since the index hit 8000 levels for the first time on September 8 and those underperforming it have dragged it," Says Sumeet Rohra of Antique Stock Broking.

Reliance Communications entered the Sensex only on June 12 and hence not included. It has weight of 3.07 in the Sensex.