Most active traders and investors in India would have noticed a peculiar phenomenon occurring in the stock market. What is that you ask? Most of the non-headline indices are way lower from their lifetime highs whereas the headline indices like Nifty, Bank Nifty and Sensex are not! Even among the 50 component stocks of the Nifty, only a few heavyweight large cap stocks are holding up the Nifty, such as Reliance, ICICI Bank, Kotak Bank, HDFC, HDFC Bank, etc. These stocks are preventing any meaningful correction in Nifty or Bank Nifty.
Lately we have witnessed how the major economic parameters like GDP growth rate, IIP data, etc are going down depicting a worrying picture of the economy, but the headline indices refuse to bat an eyelid! Is this phenomenon unique to India? Not really, you can see the same phenomenon happening with all the major indices of the world like the S&P 500, CAC 40, DAX, etc.
So what could be the reason for such a phenomenon? Well, nobody knows for sure but some experts believe that it could be due to strong inflow of money towards index funds the world over. Can such a phenomenon continue for very long? Well, that is for time to tell but it certainly behooves us to take notice and exercise caution. Take a look a the charts of the major indices of India and abroad:
Nifty Midcap Index:
Nifty Next 50:
S&P 500 (US Index):
CAC 40 (France Index):