In the year 2019, the rally in the Sensex and the Nifty has largely been restricted to a few stocks, prompting many analysts to call this the most shallow rally ever.
In the Sensex for example, a few stocks like Reliance Industries, HDFC, HDFC Bank and ICICI Bank command a weightage of nearly 40 per cent in the index, and gains in these few stocks is what has pushed the Sensex to record levels.
In fact, these heavyweight stocks from the Sensex have seen the biggest rally, while the other stocks have just been languishing. It's clear that a few heavyweight stocks have taken the markets to where they are, while the broader markets are seeing stocks still fall to 52-week lows.
Auto, metal, mining, telecom and FMCG stocks apart from a few have gone nowhere in the entire 2019.
Investors are hoping that in 2020, the markets may see a broader rally, where stocks that were beaten down participate in the rally. The midcap index and the small cap index have both fallen sharply this year. In fact, while the Sensex is at 14 per cent gains this year, the midcap and the Nifty are in the negative.
Economic recovery may see broader rally
An economic recovery may see stocks from the sectors that are languishing, participate in the rally. Stocks from infra, metal and mining, auto and FMCG space could then lead to the rally. However, this is likely to take sometime and the rally could be at least a few quarters away. In the meantime, those who have the money can invest in the beaten down names, some of which offer very good dividend yields as well.
In fact, even some media stocks, which have seen selling pressure could be a part of the rally. Overall, it looks that at least for the time being, a few select stocks would continue to rally.
Global liquidity to drive
Global cues in the last few months has been robust. This has been driving the US markets to record highs and the other markets, including emerging markets have been following. It is unlikely that the global liquidity conditions would ease anytime soon. This would mean the market momentum would continue well into the next year.
It would be advisable for investor to stick to stocks that are beaten down, but, buy leaders in their field and have the potential to rally when the economy recovers. Look for high-quality dividend paying stocks as well.