Experts are of the view that these are not the signs of a secular bull market. We are in a fractured market which can be termed as a cyclical bull market.
The S&P BSE Sensex rallied by over 400 points in intraday trade on May 30 and was trading near its crucial level of 40,000, but only a handful of names hit fresh 52-week highs which highlights the lack of depth in the market.
Sensex is up nearly 10 percent so far in 2019 and now trading closer to its record high level of 40,000, but only 30 stocks hit a fresh 52-week high, and this has been the case throughout the year.
A handful of names rose to a record high while the broader market experienced a lull period. The BSE Midcap index is still down by 11 percent, and the BSE Smallcap index is down by over 14 percent so far in 2019.
Looking at the wide divergence between the broader market, experts are of the view that these are not the signs of a secular bull market, but that we are in a fractured market which can be termed as a cyclical bull market.
A cyclical bull market is defined as a market which is relatively shorter in duration as compared to secular bull market which usually lasts decades. Hence, there is a possibility that the broader market stocks would now start to participate.
"Fractured markets cannot be termed as secular bull markets. When there is a divergence in mid, small, and large-caps, an appropriate name would be cyclical bull markets which sooner or later correct to align with broader markets," Umesh Mehta, Head of Research at SAMCO Securities told Moneycontrol.
"Due to euphoria experienced because of the Modi government coming to power for yet another term, markets bounced and touched inflated levels. Therefore, it is appropriate to say that indices have made an intermediate top at these levels," he added.
Some stocks which hit fresh 52-week highs include Naukri, Prestige Estates, Shree Cements, Siemens, and Vinati Organics among others.
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More than 60 stocks on the BSE, including Emami, Manpasand Beverages, Blue Coast Hotels, Parsavnath Developers, and S Chand & Company among others hit a fresh 52-week low on May 30.
More stocks hit a fresh 52-week low as compared to stocks which hit fresh 52-week highs, which suggest weak market breadth. But, as the economy takes a turn and with a more stable political environment, experts feel that mid and small-cap stocks should catch-up.
"Weak market breadth has always been a sign of bearish markets. However, we expect a broader market to improve from here especially after the major event of Lok Sabha Election result has ended," Vinay Rajani, Technical Analyst at HDFC Securities told Moneycontrol.
"For the past year, the performance gap between mid and large-cap has widened significantly and is expected to narrow down gradually. This is the beginning of the end for the lull in mid and small-caps. This is the time to increase the portfolio allocation in mid and small-caps," Rajani added.
Broader indices underperformed the benchmarks for almost one-and-a-half year, thus we are seeing only a handful of stocks making a new 52-week high, Jayant Manglik, President - Retail Distribution, Religare Broking told Moneycontrol.
"But, we feel the scenario will gradually change as indications are now in the favour of a rebound in the mid and small-cap pack," he said.
