INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Smallcap stocks are plunging like a falling knife
Nine of every 10 stocks in the 860-member BSE Smallcap index are currently trading in the red.
As many as 57 of them have lost 50-90 per
cent of value from their January highs while 268 others have lost over 30 per cent
The sharp fall in this pack has caught small investors off guard
Retail investors usually tend to like these stocks for their low prices.
Analysts say earnings disappointment was one of the key reasons
mutual fund schemes have also taken a toll on midcap and smallcap names, as the market regulator has sharply lowered the share of total
portfolio that largecap-oriented funds can invest in midcaps or smallcaps.
Prevailing macroeconomic challenges such as a rising crude oil
prices, a weakening rupee and emerging political uncertainties in the runup to the 2019 general elections have also unnerved investors and
made them steer clear of too risky options.
But analysts still believe there is money to be made in many smallcaps, but one has to be
Managers.
He said the growth expectation that was priced into a lot of midcap and smallcap names were too high, and there was a degree of
froth in the way retail and HNI participation was happening in this space
It is largely unwinding.
On a trailing 12-month basis, the BSE smallcap index trades at PE of 85 times, even after correcting 15 per cent
from its all-time high of 20,183 hit on January 15
Some smallcaps such as Gitanjali Gems(down 93 per cent), Diamond Power (down 88 per cent), Talwalkars Better Value Fitness (83 per cent),
Electrosteel Steel (84 per cent), Bombay Rayon (83 per cent) and GTL Infra (76 per cent) have taken a big knock ever since.
Stocks like
Jaypee Infratech, IVRCL, lanco Infratech, Reliance Naval and PC Jeweller have wiped out up to 70 per cent of investor wealth
Many of these stocks are either of debt-ridden companies or are mired in one or the other controversy
Besides, there are sectoral headwinds hurting some of them.
For example, sugar stocks have been falling on surplus sugar output and tumbling
sugar prices in overseas markets, which make exports unprofitable
Smaller banks are falling on poor asset quality
Gems and jewellery firm Gitanjali Gems has dropped on alleged fraud by its promoters while PC Jeweller fell out of favour with investors
after the promoter gifted some shares to some undisclosed relatives, triggering speculation around its shareholding patterns
Some other firms are facing debt-default proceedings.
An asset class, midcaps and smallcaps are always tricky
There are always bottom-up opportunities in a correction phase, says Gautam Chhaochharia, ED Head of India Research at UBS.
He said there
are midcaps and smallcaps, which have done well in absolute terms
of Ambit Capital, who feels the important thing to do irrespective of whether they are largecap or smallcap is to establish if the company
Several companies while demonstrating strong growth have seen margins collapse this earnings season, simply because input costs have begun
This would be an inventory build-up cycle, which happened in Q3 or perhaps Q4 last year
Given that, we are still higher on the commodity price front
investors who made a lot of money in midcaps are booking profits.
Shankar Sharma, VC Joint MD at First Global, says the smallcap space
still offers value for long-term investors with high conviction
I continue to maintain that view
Many people talk about valuation froth in smallcaps
Yes, they have run up, but earnings growth in some of them is just off the charts
might be relevant to him may not necessary be relevant for someone else not into the market full time
Multiple ratio breakdowns make this market a minefield23 May, 2018Ratio breakdowns have a lot of relevance
In the past, such breakdowns in Metals-to-Nifty ratio in 2014, Pharma-to-Nifty ratio in 2016, Auto-to-Nifty ratio in 2014 and now the
IT-to-Nifty ratio -- all of them have transformed into medium-term trends
Elara Capital looks at more such breakdowns to tell you where to go and where no to.BSE Midcap-to-Nifty ratio: Breaks four years of
uptrend23 May, 2018Post 2014, midcap-to-Nifty ratio broke out of a decade cycle downtrend on the back of midcap chasing
The ratio has been following this uptrend for the past four years
We saw two large setbacks in midcaps over 2016-17, but this trendline has held well.NSE Midcap-to-Nifty ratio: Breaking key trendline23 May,
2018Since 2014, midcaps have seen three large round of corrections during January 2016, November 2016 and May 2017)
In all three rounds, the retracement in Midcap-to-Nifty ratio from the highs in the range of 6-8%
uptrend cracked23 May, 20182014-15 was a largecap market, 2015-16 was a midcap market and 2016-17 was smallcap market
This breakdown holds importance as we had seen big crowding in the side markets in 2017 post demonetization.NSE Smallcap-to-Nifty ratio:
Breaks down23 May, 2018One full cycle of shift into smaller names seems to have been played by the markets for now
