Did you know – Only 7% of stocks from BSE 500 turned multibagger

The BSE Sensex has exhibited a commendable Year-to-Date (YTD) performance, yielding returns of 16%, while the Nifty 50 has surpassed this, delivering a robust 16.8% YTD return in the current year. Notably, the Indian equity markets have demonstrated resilience compared to their Asian counterparts, outshining indices such as the Hang Seng (-15.17%), Jakarta Composite (5.17%), and Shanghai Composite (-6.38%).  

Despite this, the Indian benchmarks fell short of the remarkable growth achieved by the Nikkei 225, which posted an impressive 28.87% YTD return. On the global stage, both the Nifty 50 and BSE Sensex have outperformed the Dow Jones Industrial Average (12.28%) and FTSE (2.14%). However, they were overshadowed by the S&P 500, NASDAQ, and DAX. 

The collective performance of Nifty 50 and Sensex for 2023 presents a marked improvement compared to 2022, where both indices returned 4.13% and 4.34%, respectively.  

Delving into a granular analysis of broader market indices such as BSE 500, BSE Midcap, and BSE Smallcap reveals nuanced insights that warrant careful consideration. 

• S&P BSE 500 Index 

The S&P BSE 500 Index, a comprehensive benchmark reflecting the performance of the top 500 companies listed on the Bombay Stock Exchange, has exhibited a diverse range of returns among its constituents. Notably, 37 companies within the index have demonstrated remarkable returns of 100% or more, 7% of the total constituents, underscoring the presence of high-performing entities that have significantly contributed to the index’s overall growth. On the flip side, 73 companies have depicted negative returns, constituting 15% of the total index components. 

• S&P BSE Midcap Index 

The S&P BSE Midcap Index, comprising a select group of mid-sized companies listed on the Bombay Stock Exchange, reveals intriguing trends in its return dynamics. Six companies, constituting 5% of the index, have showcased stellar returns of 100% or more, indicative of the Midcap segment’s potential for substantial capital appreciation. Conversely, 16 companies, representing 14% of the index, have reported negative returns, underscoring the inherent volatility and risk associated with mid-cap stocks. 

• S&P BSE Small Cap Index 

The S&P BSE Small Cap Index, a comprehensive gauge of the performance of small-sized companies listed on the Bombay Stock Exchange, provides a nuanced perspective on the diverse dynamics within the small-cap segment. Notably, a substantial portion of these companies, precisely 18% of the index, comprising 171 firms, has delivered remarkable returns of 100% or more. This underscores the potential for high growth and wealth creation within the small-cap space, attracting investors seeking opportunities for capital appreciation. On the flip side, 16% of the index, encompassing 153 companies, has reported negative returns, signalling the inherent volatility and risk associated with small-cap investments. 

What does the data portray?

This market bifurcation can be attributed to several factors. Firstly, the influx of foreign inflows primarily targets large-cap Indian equities, creating a liquidity-driven rally in those sectors. Secondly, specific sectors like IT and financials, driven by global tailwinds and strong corporate earnings, are outperforming, further widening the gap between top and bottom performers. Thirdly, inherent risk-aversion amidst global uncertainties makes investors flock towards established large-cap companies, shying away from the perceived volatility of mid-cap and small-cap stocks. 

Conclusion 

While the headline indices portray a rosy picture of Indian market resilience, a deeper analysis reveals a more nuanced narrative. The unevenness of the recovery, with pockets of phenomenal growth juxtaposed against segments struggling in negative territory, necessitates investor caution and selective stock picking. Understanding the dynamics at play within each market segment and actively managing risk becomes paramount for navigating this bifurcated market landscape. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.