The Nifty 50 has been on a dizzying ride. Last week saw yet another record high for the index, and it has hit new all-time highs over the past three weeks.
The Nifty Smallcap 100 on the other hand, has declined for four consecutive weeks. Overall, the Nifty 50 has outperformed both small and mid-cap indices over the past month. This outperformance comes even as the regulator SEBI raised concerns about ‘froth’ building up in small and mid-cap stocks.
In response, the Association of Mutual Funds in India (AMFI) swung into action and asked MFs to implement safeguards to protect investors in mid and small-cap funds. This move could impact future fund inflows, and favour large-cap investments going forward.
Is the Nifty 50 more likely to move up or down in the coming months? One way to figure out the possible direction, is to look at the historical price performance of the Nifty 50 and its sectoral indices. This helps identify the months and quarters usually preferred by investors.
In this week's Analyticks,
- A dive into share price history: Best and worst performing months and quarters for Nifty 50 and its sectoral indices
- Screener: Stocks outperforming their sectors with lower current PE ratios
Finding patterns in chaos: Best/worst performing month and quarter for Indian stocks
While it is hard to ‘time’ the market for gains, we can find patterns in how stock markets have performed historically. Trendlyne’s newly launched feature, ‘Share Price History’, helps analyse the daily, monthly and quarterly performance of stocks and indices.
An analysis of over 18 years of data (2006 to Feb 2024) for the Nifty 50 and Nifty sector indices, reveals interesting trends. April is the best month for most indices with the highest average monthly gains. On the other hand, January and February have historically seen the highest monthly average losses.
On average, most of the indices closed in the green in 13 out of 18 years in April. Nifty Auto closed higher in 16 of those 18 Aprils.
While February is usually the Nifty 50's worst-performing month, 2024 broke this pattern, as the benchmark index rose 1.2% in February.
April tends to be the best month for stocks, and February the worst
What drives these patterns? Why is April often the best-performing month, while February lags behind? To understand this, we explore the quarterly performance of these indices.
The first quarter (Jan-Mar) is usually the worst-performing, as investors typically sell underperforming assets for tax-loss harvesting, to reduce capital gains taxes owed from selling profitable investments. So It’s not surprising that January and February are the weaker months of a financial year.
Stocks usually record negative returns in Q1 (Jan to Mar)
But what makes April the best month for stocks? There may be a couple of reasons. First, after a typically weak March quarter, the market is primed for a rebound. Second, the previous financial year ends in March, leaving people with more disposable income to invest again in the new financial year (thanks to bonuses, lesser tax deductions, etc), pushing stock prices higher.
PSU bank, oil & gas, realty, and auto sectors shine in the past quarter
As FY24 draws to a close, we look at the top four sectoral indices that have risen the most in the past quarter.
The standout indices for the quarter are Nifty PSU Bank, Nifty Oil and Gas, Nifty Realty and Nifty Auto. Each of these recorded gains not just in the past month, but also over the last quarter, six months, and year.
Nifty PSU Bank rises the most in the past quarter, followed by Nifty Oil & Gas
Improving asset quality drives PSU banks higher, premiumization boosts auto sector
PSU stocks have been in the news lately with their stellar performance over the past year. The Nifty PSU Bank is the top-performing sectoral Nifty index, with a quarterly rise of 38.7%. This surge is partly from public sector banks posting strong Q3FY24 results on the back of higher interest income, lower credit costs, and improved asset quality. The top four performers in this index include Indian Overseas Bank, Punjab & Sind Bank, Punjab National Bank and UCO Bank.
Nifty Oil & Gas comes next, rising by 38% over the quarter. The aftermath of the Russia-Ukraine conflict in February 2022 led to an increase in gross refining margins (GRMs) to $10.7/barrel, significantly above the long-term average of $5/barrel, as India started to import cheaper Russian crude in large amounts. The top four performers in this index include Oil India, Indian Oil Corp, Castrol India, and Hindustan Petroleum Corp.
Oil India surges in the past quarter due to rising margin
The realty sector posted an average net profit growth of 201.7% YoY in Q3FY24, with a 21.4% YoY improvement in revenue amid strong customer demand. The top four performers of Nifty Realty include Swan Energy, Sobha, DLF and Godrej Properties.
Nifty Auto rose 19.7% in the past quarter, also helped by strong Q3FY24 results. The sharp rise in net profit was driven by higher average selling prices, through product premiumization and lower raw material costs. The top four performers in this index include Tata Motors, Bajaj Auto, Bosch and MRF.
When long-term performance is looked at, Bajaj Finance (+4,089%), Bajaj Finserv (+2,133.1%), Titan Company (+1,443.3%) and Adani Enterprises (+1,208.7%) come out on top in the Nifty 50.
Note that as always, historical data provides insight into past performance, but it doesn’t guarantee future returns.
Screener: Stocks outperforming their sectors with lower current PE ratios
Oil India, Swan Energy lead sector outperformance over the quarter
In this week’s screener, we look at stocks from the five best-performing sectoral Nifty indices (PSU Bank, Oil & Gas, Realty, Auto and Metal) over the past quarter. These stocks have not only outperformed their sectors over the past quarter and year but also have a TTM PE ratio lower than their sector averages.
The dominant sectors in the screener are oil & gas, banking & finance and auto & auto components. Major stocks featured are Oil India, Swan Energy, Indian Oil Corp, Punjab National Bank, Hindustan Petroleum Corp, Bharat Petroleum Corp, Canara Bank and Oil & Natural Gas Corp.
Oil India leads the pack with a 91% surge over the past quarter, outperforming the oil & gas sector by 59.5 percentage points during the same period. Its PE TTM stands at 11.5, which is lower than the sector’s PE of 22.1. This indicates that the stock is undervalued relative to its peers. The company’s revenue and net profit also increased by 21.8% YoY and 2.7% YoY respectively during Q3FY24.
Swan Energy follows with a 74.4% increase in its stock price over the past three months, outperforming the realty sector by 41.9 percentage points. Its PE TTM is 56.2, lower than its sectors’ PE of 69.9. The company’s revenue and net profit improved 16.1X YoY and 6.8X YoY respectively in Q3FY24.
You can find more popular screeners here.
