Why the Divergence Between Sensex and Nifty 50 in Today's Trade? - vrk100 - 01Feb2023

Why the Divergence Between Sensex and Nifty 50 in Today's Trade?

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(Updates 03Feb2023 and 02Feb2023 are available at the end of the article)

 

 

India's two bellwether indices, namely, S&P BSE Sensex and Nifty 50, delivered divergent returns today, that is, on 1st of February, 2023. While Sensex rose by 0.27 percent, the Nifty 50 index fell by 0.26 percent for the day. This is quite unusual. Why is this big difference of more than 0.50 percentage points in a single day?

 

Sensex rose by 158 points and ended at 59,708, while Nifty 50 fell by 46 points to close at 17,616 for the day.

In general, Nifty 50 and Sensex may show a small divergence on any day -- meaning one may rise and another may fall on any day. The difference could be a small number of points.

 

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Sensex has 30 stocks while Nifty 50 has 50 stocks. But several stocks with large weights are common to both these indices. Hence, the returns from the indices are almost the same on a daily basis. The difference on any day may be a few basis points, which is negligible. (100 basis points equal one percentage point).

 

But today's difference in Nifty 50 and Sensex returns is huge. And I've never seen such a big difference in the two indices in the last 20 years.

 

Screenshots showing returns of Sensex and Nifty 50 on 01Feb2023 >

 

 

The reason for the divergence could be mainly due to big fall in two Adani group stocks, namely, Adani Enterprises and Adani Ports & SEZ, today. While the former fell by 28.5 percent, the latter fell by 19.7 percent on BSE. On NSE, the former fell by 26.7 percent and the latter by 17.7 percent. 

 

Both these stocks are part of Nifty 50 index, but they are not part of Sensex. My guess is that today's big divergence is mainly due to the gross under-performance of these two Nifty 50 stocks belonging to Adani group.

 

I don't know the latest individual weights of these two Adani group stocks in Nifty 50. Hence, I'm unable to give a definite answer to today's divergence. (as on 31Dec2022, Adani Enterprises' weight was 1.32 percent and that of Adani Ports & SEZ was 0.77 percent).

Adani group stocks have been under pressure for the past one week due to allegations of price manipulation and accounting fraud by Hindenburg Research of the USA. While Adani group has denied the allegations, Adani group stocks on Indian stock exchanges have lost more than Rs 8 lakh crore of their market value in the past one week.

 

Interestingly, Hindeburg released their 100-page report on 24Jan2023, just ahead of the Adani Enterprises' follow-on public offer (FPO), which was closed on 31Jan2023.

It remains to be seen how the Adani group stocks, including the recently acquired group companies ACC Ltd and Ambuja Cements, will do in the next few weeks.

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P.S.: After writing the blog, the following updates are added with new information / images:

Update 03Feb2023 :  Though the fall in Adani stocks continued today, the gap between Nifty 50 and Sensex narrowed down. The two group stocks in Nifty 50 index, namely, Adani Enterprises and Adani Ports & SEZ, rose by 1.3% and 8.0% respectively today -- with closing prices at Rs 1,584 (market cap Rs 180,600 crore) and Rs 499 (market cap Rs 107,760 crore) on the BSE. 

 On NSE, Adani Enterprises fell by 2.2 percent and Adani Ports & SEZ went up by 5.6 percent. 

Sensex rose by 1.52 percent to 60,842, while Nifty 50 increased by 1.38 percent -- narrowing the gap between the two to just 14 basis points.

 

Update 02Feb2023 :  The fall in Adani group stocks continued unabated on 02Feb2023. The two group stocks in Nifty 50 index, namely, Adani Enterprises and Adani Ports & SEZ, fell by 26.5% and 6.1% respectively today -- with closing prices at Rs 1,565 (market cap Rs 178,376 crore) and Rs 462 (market cap Rs 99,798 crore) on the BSE. On the NSE, these two stocks today fell by 26.7% and 7.2% respectively. 

Due to the relentless fall even today in these two Nifty 50 stocks, which are not part of Sensex index, the divergence between Sensex and Nifty 50 continued on 02Feb2023 with the Sensex gaining 0.38% (closing level 59,932) and Nifty  50 index losing 0.03% (closing level 17,610).

 

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Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

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