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The domestic equities market has seen a dramatic divergence, with roughly 75% of BSE 500 stocks returning flat or negative over the last year.
Of the 500 constituents, approximately 370 ended in the negative, while the remaining 50 were only moderately positive. During the period, the BSE 500 fell nearly 3 percent, while the Sensex and Nifty 50 fell a percent apiece. Despite the wide drop, nearly half of these failing equities remain above their long-term price-to-earnings multiples on a one-year forward basis.
Analysts blame the slump on stretched valuations in numerous mid- and small-cap stocks following a rapid surge in 2023-24. Subdued earnings, driven by sluggish rural demand, growing imports, and export hurdles, have weighed on mood, pushing down even large-cap heavyweights in the benchmark indices.
Geopolitical concerns have exacerbated the anxiety, with new US tariffs on Indian goods reducing foreign inflows. On the bright side, the government’s decision to reduce GST slabs is likely to increase consumption by Rs 2-2.4 lakh crore, thereby improving GDP growth. Analysts believe that improved September-quarter earnings and improving macroeconomic signals could boost foreign institutional investor (FII) involvement.
Global cues remain essential. Investors are focused on the forthcoming US Federal Reserve meeting, where a smaller-than-expected rate decrease or hawkish language from Chair Jerome Powell might upset markets. However, experts warn that any short-term drop may create good long-term possibilities as valuations improve.
Aditya Birla Fashion and Retail lost more than 74% of its value, while Sterling and Wilson Renewable Energy and Tejas Networks fell 64% and 54%, respectively. Other noteworthy laggards are HFCL, Siemens, IndusInd Bank, Punjab and Sind Bank, Natco Pharma, Praj Industries, Ola Electric Mobility, and Adani Green Energy.
Gains have been concentrated in a small number of banking and PSU stocks. Bajaj Finance, ICICI Bank, and certain PSU banks, as well as some energy companies, have provided critical support to the indices.
“Investors should stay selective, focusing on fundamentally strong stocks in leadership sectors showing technical breakouts and improving momentum, rather than broad-based buying,” said Hardik Matalia, Derivative Analyst at Choice Broking.
On the technical front, the Sensex has recaptured key moving averages on the daily chart, while momentum indications are turning positive. Nonetheless, the index remains range-bound between 76,000 and 84,000 on a weekly basis, indicating consolidation. Analysts observe that the monthly structure remains optimistic as the index trades far above long-term norms, indicating a rotating market phase rather than a structural reversal.
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