Smallcap, midcap stocks fall most since September, may correct further
, ET Bureau|
Jan 17, 2018, 08.16 AM IST
MUMBAI: Shares in the mid- and small-cap segments took a beating on Tuesday with their respective indices falling the most since September last year even as the benchmark indices — Sensex and Nifty comprising blue chips — ended with marginal losses.
With concerns over froth in the mid- and small-cap stocks rising, investors are taking profits off the table after a near uninterrupted run in these segments, analysts said.
The BSE MidCap index plunged 1.7 per cent to 17,813.94 — the most since September 27 last year; while the BSE SmallCap index declined 2.2 per cent to 19,602.95 — its biggest one-day loss since September 22. The BSE MidCap index had closed at a record high level of 18,247.55 on January 8; while the BSE SmallCap index had ended at a record closing level of 20,046.90 on Monday.
"The index (Sensex) held on mostly because of the rise in IT sector and some private banks. Midcaps had risen continuously without any profit booking," said Rikesh Parikh, VP-markets strategy and equities at Motilal Oswal Financial Services.
In 2017, the BSE MidCap Index had gained 48per cent while the BSE Sensex had gained about 28per cent. Select stocks have even doubled. Midcap index constituents Vakrangee, Jindal Steel & Power, Tata Global Beverages, TVS Motor and Adani Enterprises surged 97-207per cent in the calendar year 2017.
The valuation gap between the benchmark Sensex and the MidCap index has also stretched.
Mid & Small-cap Stocks Plunge
The BSE Sensex is trading at a priceto-earnings ratio of 22.76 on FY18 earnings basis, while the BSE MidCap index is trading at a P/E of 30.71 times.
Market experts believe stocks are expensively valued in the mid- and small-cap segment and could see further correction.
"Several mid-caps are overvalued to the extent of 30-40per cent. We are sticking to sector leaders in preferred sectors, turnaround stories and global cyclical stocks," said Sanjeev Prasad, co-head, Kotak Institutional Equities.
"Investors should look at capital preservation given a weaker macro and rich valuations in general. Largecap quality companies will lose less money in the event of a market correction," added Prasad.
With concerns over froth in the mid- and small-cap stocks rising, investors are taking profits off the table after a near uninterrupted run in these segments, analysts said.
The BSE MidCap index plunged 1.7 per cent to 17,813.94 — the most since September 27 last year; while the BSE SmallCap index declined 2.2 per cent to 19,602.95 — its biggest one-day loss since September 22. The BSE MidCap index had closed at a record high level of 18,247.55 on January 8; while the BSE SmallCap index had ended at a record closing level of 20,046.90 on Monday.
"The index (Sensex) held on mostly because of the rise in IT sector and some private banks. Midcaps had risen continuously without any profit booking," said Rikesh Parikh, VP-markets strategy and equities at Motilal Oswal Financial Services.
In 2017, the BSE MidCap Index had gained 48per cent while the BSE Sensex had gained about 28per cent. Select stocks have even doubled. Midcap index constituents Vakrangee, Jindal Steel & Power, Tata Global Beverages, TVS Motor and Adani Enterprises surged 97-207per cent in the calendar year 2017.
The valuation gap between the benchmark Sensex and the MidCap index has also stretched.
Mid & Small-cap Stocks Plunge
The BSE Sensex is trading at a priceto-earnings ratio of 22.76 on FY18 earnings basis, while the BSE MidCap index is trading at a P/E of 30.71 times.
Market experts believe stocks are expensively valued in the mid- and small-cap segment and could see further correction.
"Several mid-caps are overvalued to the extent of 30-40per cent. We are sticking to sector leaders in preferred sectors, turnaround stories and global cyclical stocks," said Sanjeev Prasad, co-head, Kotak Institutional Equities.
"Investors should look at capital preservation given a weaker macro and rich valuations in general. Largecap quality companies will lose less money in the event of a market correction," added Prasad.
