The Indian stock market is entering a new phase. A phase where choosing shares intelligently means more than wisely than trusting the trends of the index. The Alternate Investment Firm, launched by the famous midcap fund manager Pankaj Tibrewal, said these things in its recent quarter report. According to the report, the stock market is now running from a small group of better performing shares, while most of the shares are struggling.
Data of Nifty 500 shows that the difference between the returns of the index and the average returns of the stock included is increasing rapidly. During the recent March quarter, the NIFTY 500 index saw a decline of 6.8%, the average return of the stocks included -12.8% during this period. That is, there was a difference of about 6 percent in the performance of the index and stocks, which is the biggest difference in the last one year. The trend started from Q2 FY25 and is deepening with every quarter.
Earnings in less companies
This difference is not only technical, but also shows the changes in the earnings of companies. In the third quarter of FY 2025, only 16% of NIFTY 50’s profit growth was more than 25%, while the average of the last five years was 37%. Companies with high profit growth in Nifty-50 have come down to 33% from a historic average of 40%.
IKIGAI report says, “In this quarter, almost all the new earnings of Nifty 50 have come from only 3–5 companies. The rest of the companies showed very little contribution.”
What is the structure of the stock market changing?
These figures show that just looking at the index does not reveal the real picture of the stock market. Due to the good performance of only a handful of veteran shares, the index is going up, while the performance of most shares remains weak. IKIGAI has counted many reasons behind this change in its report-
Easy money round end: During the Korona epidemics, central banks announced several incentive schemes at the global level, due to which a lot of money came in the market. This helped accelerate the stock markets for a long time after Kovid. But now the era of this easy money is over. The central banks have become strict about their monetary policy, due to which the focus has now shifted to selected good fundamental shares.
Decline in valuation: In early 2025, the mid and small cap index saw a sharp decline of 20 to 25%. This has caused investors to be cautious and now only investing in companies where the trust and valuation support is available.
Sectoral change: Sector such as oil and gas, PSU banks and utilities (which trading on low P/e multiple) in large-cap index are now becoming a large part of the profit pool. These help to make the valuation of sector index make cheaper, but do not show widespread earning growth.
Now the era of stock selection
In view of all these reasons, the fund manager is now adopting bottom-up approach instead of the index. Ikigai wrote, “This is not the time to react, but to re -create the strategies. Everything is not going well, and the average figures are affected by the shares of a few companies.”
Although NIFTY 50 has a forward P/E 26X, it looks cheaper due to PSU banks and oil companies such as P/E stocks. On the other hand, Nifty Midcap 150 has P/E 23X, which breaks the myth that large cap stocks are cheap at this time.
The report said that during this time the balance sheet of many mid and small-cap companies is better than before and their debt level is at minimum. Also, during FY24–27, they are expected to grow sharp growth. In such a situation, now the time to invest only by looking at the index is over.
Conclusions: Real Story is no longer index
Index based investment was enough during the previous bull cycle of the stock market, but it is not so now. Not all shares are participating in the market boom. In such a situation, investors should see if they are holding stocks that are participating in this fast wave. As Ikigai said: “This is not to react, but to think again and change the strategy.”
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