Jul 5, 2016
Quarter end is the time we look into the rear-view mirror to evaluate trends and gain insights from past performance.
The Nifty 50 Struggled to Deliver a Base 12 % Hurdle Return Over the Past 12 Months
A 12% hurdle rate is an accepted long term return benchmark for Equities. For the Nifty 50, 16 stocks exceeded the hurdle rate over the prior twelve months ended June 30, 2016, but only 12 exceeded the rate by a comfortable margin. (see tables starting page 4).
For the broader CNX 500, in contrast, the top 50 stocks each delivered returns in excess of 56.2% over the past 12 months and 203 stocks delivered returns in excess of 12% or 40.6%.
The Nifty 50 Struggled to Deliver a Base 12 % Hurdle Return Over the Past 12 Months
The best performer in the Nifty 50 over the past 12 months was Grasim Industries with a return of 33.1%.
In contrast, the best performer on the CNX 500 was a small cap stock – Balrampur Chini Mills – with a return of 216.4%. The best performing mid cap stock was Manappuram Finance with a 175.5% return.
The 20% Hurdle
For the Nifty 50, only 9 stocks delivered returns in excess of 20% for the prior twelve months, or 18% of stocks in the index. In contrast, in the CNX 500, 158 stocks delivered returns in excess of 20%, or 31.6% of stocks did so. In other words, one in every three stocks in the CNX 500 delivered a 20% return.
Regardless of how you look at the data, the Nifty 50 was a mediocre hunting ground for performance, with only 12 stocks being worthwhile investments over the past year. In contrast, the CNX 500 was a fertile universe, with 168 stocks (33%) delivering returns above 20%.
Liquidity & Volume
Average daily volume improved considerably for CNX 500 stocks, increasing by 20.4% over the past twelve months.
Sector
Consumer Finance – a sector we have spoken about frequently – was the best performing sector in the recent quarter, with the broadest representation in the top performing stocks in the CNX 500. Chemicals were a close second.
A whopping 8 companies out of the top 50 in the CNX 500 were from the Consumer Finance sector, reflecting the recognition of growth prospects these companies present. Chemicals were next with 6 companies, followed by Banks and Construction Materials. Real Estate had a decent representation to round out the top sectors. (Additional details in the charts beginning on page 4).
Volume Trends
Banks were the beneficiaries of the largest build-up in volume over the recent quarter. However, it was o’t the typical private sector large caps. State Bank of Bikaner and Jaipur, Indian Bank, Indian Overseas Bank and Andhra Bank were the largest percentage beneficiaries.
Chemicals were the next industry that had 10 companies that had substantial increases in volume. Rashtriya Chemicals & Fertilizers, Monsanto, Solar Industries and Coromandel were the primary names of note.
Rounding out the list were Food products companies focused on beverages and sugar and Real Estate Management and Development companies.
Technical
After a big event like Brexit the Nifty has seen a smart rally of almost three percent to 8328 in last week, giving a strong weekly close for the Nifty. The index managed to cross critical Fibonacci level of 8243, which is 61.8% retracement of the whole decline seen from high of 9119 in Mar’15 to low of 6825 in Feb’1. But the Nifty closed right below its Oct’15 high of 8336.
Momentum continues to be strong in the market with broader market participation. On the downside, 8000-7950 becomes the major support zone for markets. Also, the 8000 strike has the highest open interest for puts, which will act as a base for the markets. Index VIX, a measure of volatility has seen a sharp drop from 21 to below 16 levels post the event and this bodes well for the market to move higher.
On the upside, the index needs to trade above 8356, which was last week’s high on a sustainable basis for the rally to continue higher. Sustaining above this level, next levels for the market are seen at 8550-8630 zone. Markets are in a bullish momentum and post the sharp rally any dips in short term towards 8150-8100 are a good opportunity to buy. Stocks from Auto, Banks, Cement, Financials look strong likely to outperform the market; while stocks from Pharma and IT continue to look weak.
Outlook
Brexit Rexit and the Fed look to be out of the way. The monsoon is progressing reasonably, the Seventh Pay Commission and passage of the GST Bill will provide further impetus to the bulls.
The technicals of the market appear reasonable. Further direction and further gains will emerge from Q2 CY16 earnings.
While the monsoon has shown good progress, we prefer low duration exposure on bond portfolios for now. We will stay put on making any changes to rate forecasts until an announcement is made on the new RBI Governor and clarity emerges on the Governor’s and the government’s roadmap and strategy on inflation and growth.
Finally, our performance attribution confirms and continues the trend of the past 3 years. For investors looking for substantial returns and wealth creation, it is critical to maintain a significant exposure to mid and small cap stocks. This holds particularly true in light of lacklustre global growth.
We attach below performance data for the quarter ended June 30th, 2016, year to date period and year over year periods. Performance data for each of the constituents of the Nifty 50 and the top performers in the CNX 500 is listed. Later this month, we will be releasing our Mid Year Investment Outlook which looks at the longer term trends pertinent for investors and the investment implications of these trends.
Nifty 50 & CNX 500 Performance – 1 Year
Nifty 50 & CNX 500 Performance – Year To Date
Nifty 50 & CNX 500 Performance – Second Quarter CY2016
Nifty 50 Volume Relative Strength Rankings – Second Quarter CY2016 (Please note that volume strength is not always a bullish indicator)
CNX 500 Top 100 Stocks Sorted By Sector & Industry – Second Quarter CY2016
CNX 500 Top 100 Stocks Sorted By Sector & Industry – Second Quarter CY2016(Continued)
Small Caps and Realty Were the Clear Market Leaders
Small Caps and Realty Were the Clear Market Leaders
While the Nifty 50 Held It’s Own Against Premier Emerging Markets
