The fall in smallcaps has largely been secular spanning across sectors though pharma, considered as defensive in market parlance, has been an outlier with most stocks doing well.
Among the worst hit in the 100-stock index is Birlasoft followed by state-run shipping counters Ircon International and Cochin Shipyard. While Birlasoft has fallen by 23%, the two PSU stocks have corrected by 22% and 20%, respectively.
Housing and Urban Development Corporation (HUDCO) and Central Bank of India (CBI) are other government-owned companies in the BFSI space whose stock prices have eroded in double digits.
Others like IIFL FInance, RBL Bank, Titagarh Rail Systems, Raymond, Aarti Industries and Tejas Networks have fallen between 16% and 18%. State-run National Aluminium Company (NALCO) and Mangalore Refinery and Petrochemicals have fallen by 16% and 15%, respectively, while auto ancillary stock Exide Industries has corrected by 13% over a one month period.
The underperformance in broader market stocks are on fears of deeper correction as valuations remain ahead of the earnings. While markets rebounded sharply following two major domestic events β a lower than estimated election outcome followed by the Budget β it is the imported triggers that engineered major decline.
A surprise rate hike of 25 bps by the Bank of Japan led to reverse yen carry trade. US recession fears after higher than expected unemployment number also spooked the global markets including India leading to widespread in broader markets.
In the Nifty Smallcap 100 index, overall 78 stocks have fallen into the red. There are 20 stocks which have corrected by up to 5% while 22 have managed positive returns.
Smallcaps have had a great run for more than a year and even now the returns by this index are around 55% over a 1-year period with 87 stocks managing positive returns.
But even in best of times, 13 stocks, including Five Star Business (-12%), CreditAccess Grameen (-17%), Triden (5%), RR Kabel (-7%), IDFC (7%), Navin Fluorine (-3%), Birlasoft (-13%), NMDC Steel (-15%) and RBL Bank (-18%), failed to inspire confidence.
Smallcaps Vs Midcaps Vs Largecaps
Nifty Midcap 100 has seen a 1.9% dip in the past one month declining by 1,117 points while Nifty has corrected by 440 points or 1.8% in this period. Over a 1-year period, the gains by the former stand at 50% while those by the latter are at 24%.
“Six-eight months back, practically 60% of the smallcaps were outperforming the Small Cap Index that has now come down to around 25% to 30%, which means the breadth of the market has gone down, which means that it has become more difficult now to look for the money-making ideas,” Aniruddha Sarkar of Quest Investment Advisors said. “Like last 24 to 36 months. all of us have made money in the market, some have made more, some have made less but I think the easy part of making money has gone,” he added.
“At this point in time the relative valuations are probably far more attractive with the largecaps and the risk reward out there seems to be much more favourable,” Sachin Shah of Emkay Investment Managers told in chat with ET Now.
Winners
As investors turn to defensive, focus has been on FMCG and pharma stocks. Smallcap pharma stocks have been among the best performers, sectorally. Stocks like Natco Pharma, Piramal Pharma, JB Chemicals & Pharmaceuticals, Glenmark Pharma have yielded returns between 23% and 8% in this period.
With 26% returns, Triveni Turbine has topped the chart.
Also Read: As Nifty struggles, defensive FMCG and pharma deliver returns of up to 23% in a month
The levels were as on Wednesday, August 14. Indian stock markets were shut on Thursday on account of Independence Day.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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