In this edition of Chart of the Week, we look at the top 15 stocks that drove the Nifty 500’s rise in the past year. These stocks were responsible for 25.3% of the Nifty 500’s 14% gain. This translated to an overall 3.6 percentage point contribution.
Over the past year, the Nifty 500 has risen 14%. To understand which were the top stocks that drove this surge, we analysed the change in market capitalisation for stocks in the index, and divided it by the total change in market cap across all index members.
NBFCs and public sector banks lead gains in banking & finance
Six of the 15 stocks in our list are from the banking & finance sector. Within the sector, the non-banking financial company (NBFC) industry is represented by Indian Railways Finance Corp, Power Finance Corp, and REC. These three stocks drove 3.5%, 2.2%, and 2.2% of the Nifty 500’s gains, registering impressive one year returns of 250%, 191%, and 199%, respectively.
The top public sector banks in the list include Indian Overseas Bank, UCO Bank and Union Bank of India, contributing Nifty500 gains of 2%, 2%, and 0.2% respectively. They delivered multibagger returns of 161%, 262%, and 135% in the past year.
The public banking sector’s PE TTM ratio stands at 8, compared to the overall banking industry's 19.2, indicating potential for further growth in PSU bank stocks. Several growth drivers like the RBI's decision to remove the incremental CRR (Cash Reserve Ratio) mandate of 10% for scheduled banks and the inclusion of Indian sovereign bonds in the JP Morgan Government Bond Index are at play.
Engineering stocks surge on budget boost and lower input costs
Larsen & Toubro and Rail Vikas Nigam from the cement & construction sector have contributed 3.9% and 1.9% respectively to Nifty 500’s yearly gain. Their performance got a lift from the government’s 33% capex hike to Rs 10 trillion in the FY24 budget. The sector's growth can also be attributed to the declining prices of input materials like steel, which have fallen by 22% since their peak in Q4FY22. These prices are further expected to drop by 9-11% in FY24. This decline is expected to have a positive impact on operating profitability, especially for companies with fixed-price contracts, which typically constitute 25-30% of their total revenue.
Larsen & Toubro’s stock price rose by 62% in the past year. According to the company's Chief Financial Officer, R Shankar Raman, its order book increased by 57% YoY to Rs 65,000 crore in Q1FY24. The management expects it to surge to Rs 2 lakh crore by Q4FY24.
Rail Vikas Nigam, with a 368% rise in the past year, has reaped the benefits of the government’s Rs 2.4 lakh crore allocation to the railways in the FY24 budget. As of Q1FY24, the company's order book is at Rs 65,000 crore, including Rs 30,000 crore from the railways. The management aims to grow it to Rs 75,000-1 lakh crore by the end of the fiscal year.
Meanwhile, IT major Tata Consultancy Services contributed 3.3% to Nifty 500’s gains, thanks to a 17% annual share price growth. The company has multiple transformational deals in its pipeline, including projects with NEST for digital scheme administration services. According to Sharekhan, TCS sustains strong deal momentum, averaging $8.9 billion from Q1FY23 to Q1FY24. Notably, contracts with JLR (Jaguar-Land Rover)/NEST and BSNL, valued at $1 billion, $1.1 billion, and $1.8 billion, are expected to boost revenue growth estimates.
Strong order books and inflows drive general industrials and shipping stocks
Suzlon Energy, a heavy electrical equipment company, added 1.5% to the gains of Nifty 500, thanks to a 280% rise in its stock price in the past year. The company currently holds a 33% market share in the wind energy space, with an order book of 1.5 GW in the domestic market. According to ICICI Securities, its revenues are expected to achieve a CAGR of 37% during FY23-25.
Mazagon Dock Shipbuilders, a shipping company, contributed 1.6% to Nifty 500’s gains. With multibagger returns of 261% in the past year, the company’s order book consists of defence orders amounting to Rs 50,000 crore as of August 2023. The firm is also competing with a joint venture of Larsen & Toubro and Thyssenkrupp, Germany, in the bidding of P75 submarines.
Other significant contributors to Nifty 500’s gains are ITC, NTPC and The Fertilisers and Chemicals Travancore. ITC, with a 31% annual growth, contributed 2.5%, while NTPC’s 45% annual stock price increase added another 1.5%. The Fertilisers and Chemicals Travancore contributed 1.8%, with a remarkable 366% rise in its share price over the same period
