'Number of Stocks Generating Positive Returns within Nifty500 Has Narrowed'

The breadth of the stock market rally is narrowing with the number of stocks generating positive returns coming down.

The number of stocks generating positive returns within the Nifty500 universe has narrowed from 452 in Q1FY24 to 268 in Q4FY24, a report by Motilal Oswal Private Wealth (MOPW) said.

In the last quarter, January-March 2024, 70 per cent of the large-cap universe generated positive returns as compared to 57 per cent in midcap and 45 per cent in small caps, the report said.

Sector performance is also witnessing rotation. Finance (non-Banks), Auto, and Healthcare which had lagged for most of FY24 have been among the top performers last quarter, while Power & Infrastructure, which had dominated the rally, have started to lag.

The Nifty surged nearly 11 per cent from December to March, while the median return of the top 250 small caps was just 3.8 per cent. In fact, 34 per cent of the top 500 companies and 42 per cent of small caps delivered negative absolute returns during this period.

“This disconnect between the Nifty and broader markets could be attributed to factors such as attractive relative valuations of large caps post the small and mid-cap rally, regulatory concerns over potential overheating, and resumption of FII flows which favour large caps,” the report said.

Over the last five years, India's capital markets have witnessed vibrant participation from domestic retail savers, with Demat accounts surging to 151 million in March 2024 from 36 million in March 2019. India Inc. has raised $92.9 billion through primary markets during this period.

Expectations of political continuity augur well for market sentiment. Corporate earnings growth may witness moderation relative to the pace witnessed over the last few years but is expected to remain steady given the robust health of India Inc. balance sheets and the ongoing capex cycle, the report added.