Nifty and Sectoral Indices

Rather than doing a routine “Nifty-Outlook” post, I felt doing a round-up of sectoral indices, and how they have performed in relation to the Nifty, would be far more interesting. Let’s start off with a Relative Rotation Graph (RRG) developed by Julius de Kempenaer of www.relativerotationgraphs.com. Direct your attention to the weekly chart below.


The above chart captures the weekly relative performance of the sectoral indices in relation to the Nifty over a period of one year. The ones in the top-right Green quadrant indicate relative -outperformers while those in the bottom-left Red quadrant are underperformers. CNX Pharma, CNXIT and CNX FMCG have been top outperformers whereas CNX Metals has been a rank underperformer.

When the defensive sectors such as Pharma and IT (some may argue IT not being defensive) are still outperforming the Nifty, it makes little sense to talk about a big time bull market as yet.  The high-beta CNX BankNifty  has drifted into the Red Weakening quadrant which is not a healthy sign.

For the resumption of the bullish trend, we would ideally want the BankNifty and the CNX Auto index to get to the top-right green quadrant soon. At the moment, both these indices (which are typically a proxy for economic growth) are in the Red lagging quadrant.

Having talked about the indices and their relative performance, please be reminded that there is a lag between the actual index movement and their progress in the RRG graph. The indices switch quadrants only after price has made a significant move. So, let’s switch to the more recent performance of these indices since September 7 low.


It is apparent from the above chart that CNX Realty index is the top out-performer since September 7, followed by the Bank Nifty and the CNX PSUBANK index. Did the pro-money get a wind of the recent rate-cut?  The defensive sectors such as CNX IT Pharma, CNX IT have either been relative under-performers or muted in their returns, suggesting that market participants are PROBABLY sensing a turn around in the economic fundamentals. It is however too early to make any conclusion based on one-month price action but, it would not be outlandish to state that we might probably bottom-out soon.

Share your thoughts on the post and let me know if a regular update on sectoral indices would interest you. Post your feedback in the comments section below. Keep watching this space for regular updates.

PS: RRG charts are quite insightful in terms of sectoral allocation too. It is not only logical to focus on the Green Right Quadrant sectors, but is also equally important to avoid the ones in the bottom Red Left quadrant.

Comments 2

  1. RRG charts look very interesting. Can you post a chart about the components of various sectoral indices?


  2. Post


    Nice to hear that you found the RRG charts interesting. I am planning to do regular updates, including RRG charts, with relatively detailed write up on index constituents.

    In the meanwhile, you can check the constituents of the index at http://www.nseindia.com.



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