Picture this scenario: after sitting on the sidelines for what seemed like a lifetime, you finally decided to take the plunge into equity investing when the BSE Sensex hit the 8,000 mark last September. Your decision proved right! After all, the benchmark 30-share index has shown little signs of losing steam and had hurtled into the 11,300 territory at the time of writing. The Sensex has gained close to 40 per cent between 8,000 and 11,000, so assuming you invested Rs 1 lakh six months ago, you should have made a clean whack of at least Rs 40,000, right? Er, not quite. What if you had parked your money in scrips like IndusInd Bank, VisualSoft Technologies, Arvind Mills and Micro Inks-all A group, apparent top-of-the-line companies? Well, the bad news is that if your portfolio consisted of these four stocks, you would have emerged poorer by at least Rs 30,000. And if your entire Rs 1 lakh was parked in IndusInd, your initial corpus would have whittled down by almost half (see Those That Missed Out).

Surprised? Well, a study of the 195 stocks that make up the A group (excluding those that weren't listed last September) and the returns they've thrown up between September and March reveals that prices of 55 scrips actually depreciated over that period. The highest plunge was by as much as 56 per cent, with some 20 stocks falling by at least 20 per cent. Of the 140 stocks that did witness a surge in share prices, 85 underperformed the Sensex.

So, why have 25 per cent of India's top 200 stocks gone the other way-down? Devesh Kumar, Head (Equity), ICICI Securities, thinks this could have something to do with the investing strategies of the foreign institutional investors (FIIs). "As fresh inflows come into the market (till March 29, FIIs had infused $3.88 billion or Rs 17,460 crore into Indian equities in 2006), many of the new investors (read FIIs) don't know too much about Indian companies, and that's why they're comfortable focusing just on the top 50," suggests Kumar.

However, the relative lack of awareness of the FII fraternity is just one of the reasons for the waning interest in many A group stocks. Kumar himself points out that "the fall in stocks in the last few months has been mainly on selling from existing investors who offloaded on bad news". Indeed, such "bad news", or the lack of the good news, was in evidence particularly in the so-called defensive sectors like software (eight of the 55 stocks that fell are from the it sector), pharmaceuticals (eight), banking (11) and refineries (three). These sectors have over the months lost favour to construction, engineering, fast moving consumer goods, power, automobiles and cement. These are the sectors in which companies have been announcing major capital expenditure outlays, acquisitions (many of them internationally) and have been driven largely by the infrastructure growth story and overall economic growth. Says Naresh Kothari, Head (Institutional Equities), Edelweiss Securities: "At current levels, there is no room for errors. With the width in the market declining, players have punished the stocks of those companies who have delivered below market expectations and rewarded those in which they have seen possibilities of growth."

In the it services sector, the men are clearly being separated from the boys, with 30 per cent earnings growth being restricted largely to the pack of tier 1 companies, with most of the others having to reckon with single-digit growth, if at all. Analysts have also begun questioning their high valuations-juxtaposed against poor results-and the over 50 per cent erosion in the price of Ramco Systems is a case in point. The banking sector, meantime, has to now contend with rising interest rates and scarcer liquidity. Analysts also point out that with public sector banks having gone in for raising capital from the markets (with follow-on offerings), there is an oversupply of shares, thanks to selling by leveraged investors in the secondary market on the day of listing. In pharmaceuticals, stocks like Ranbaxy have been the prominent losers, although the Delhi-based company has been trying to make up for the 25 per cent erosion over the past six months with a string of overseas acquisitions.

Even as the indices continue to soar, investors will punish stocks that can't justify their valuations. And the best way to do that is to turn out double-digit earnings quarter after quarter. Also, companies that are infrastructure plays, those whose fortunes are closely linked to the economy and those riding on the increase in consumption, courtesy rising income levels and rural spending, are favoured more by investors, says Gurunath Mudlapur, MD, Atherstone Institute of Research. That's why stocks like Siemens, BHEL, L&T, Alstoms Projects, Tata Motors, ITC, Colgate Palmolive and acc have gained in the 60-130 per cent range in the last six months. Now that would be a portfolio to kill for.