Financial skew at play as Sensex lags Nifty
The absence of metal stocks has also hurt the BSE index’s performance in CY21 so far
Returns of the 30-share BSE Sensex have lagged that of the NSE Nifty50 by 314 basis points (bps) this year, so far. The two indices of blue-chip stocks typically move lockstep but a larger skew towards financial stocks and the absence of metal companies have weighed on the Sensex’s performance.
Returns of the 30-share BSE Sensex have lagged that of the NSE Nifty50 by 314 basis points (bps) this year, so far. The two indices of blue-chip stocks typically move lockstep but a larger skew towards financial stocks and the absence of metal companies have weighed on the Sensex’s performance.
On a year-to-date (YTD) basis, the index is up 1.97 per cent, while the Nifty has gained 5.11 per cent. In CY 2020, the Sensex had outperformed with returns of 15.8 per cent versus 14.9 per cent of the latter.
Experts say the market performance has been more broadbased this year, putting narrow gauges like the Sensex in a disadvantageous position.
An analysis of sectoral weighting shows that banks and financial stocks have 42 per cent weighting on the Sensex and 35.4 per cent on the Nifty. Stocks in the financial services have been laggards this year, with the Nifty Financial Service index gaining less than 2 per cent YTD.
While at less than 4 per cent, the Nifty still has a representation of metal stocks -- which have been on a tear this year. JSW Steel and Tata Steel, which form part of the Nifty index, have rallied over 80 per cent each YTD. The Sensex, on the other hand, doesn't have any stocks from the metals space.
In December, Dr Reddy's had replaced Tata Steel in the 30-share index.
“The top weighting for both indices is largely the same. Having said that, the Sensex runs a more concentrated portfolio as it has only 30 stocks. The index tends to do better than the Nifty when select stocks drive the markets, something that we saw during 2017 and 2020,” said an analyst.
The performance of the Sensex and the Nifty impacts those investing through the exchange-traded fund (ETF) route. Both indices are among the most widely tracked by domestic ETFS and index funds.
As many as 17 ETFS with assets of ~1.25 trillion (as on March 31) and another 15 index funds with assets of ~10,718 crore were benchmarked to the Nifty50. The Sensex is tracked by nine ETFS with assets of ~56,930 crore and five index funds with assets of ~2,540 crore, according to the data provided by analysts.
Both Sensex and Nifty use freefloat market capitalisation to assign a weighting to individual stocks. While stocks like JSW Steel and Tata Steel have done well this year, their contribution to the Nifty’s gain this year is capped because of low weighting.