A day to forget for small-caps as markets plunge

We are seeing a mean reversion phenomenon in the markets where the mid- and small-cap indices both peaked in October and are now experiencing a correction at a rate faster than the Nifty said Deepak Jasani, head of retail research at HDFC Securities. Investors display a sentiment of risk aversion and are not willing to wait longer, and hence are pulling out of the market booking profits wherever available or cutting losses.

A sharp correction in small-cap stocks is affecting the broader Indian market. The index of small-cap stocks has lost over $80 billion in market value. The MSCI India Index is lagging behind Asia Pacific index. The regulator expressed concern about price manipulation in new listings.

CA Rudramurthy, Head of Research at Vachana Investments, advises caution in midcaps and smallcaps as these stocks have started correcting. He points out that yesterday and today there has been underperformance in these sectors. He suggests selling when you can and not when you want, and shifting from momentum to value. He also mentions that the India VIX has been volatile but has not shown any specific moves. He recommends shorting weaker stocks such as Muthoot Finance and M&M Finance, while avoiding selling strong stocks like Escorts, HDFC Bank, and SBI.

The gap between largecaps and small and mid cap indices is widening, but no structural breakdown has occurred. IT stocks, except for TCS, are in a downtrend. Tata Steel shares hit fresh 52-week highs. A largecap route is a more broad based one, while smaller cap approach is often in search of superlative returns, and provides a larger universe to pick. This advantage stays with the smaller market capitalized segment.

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After India became the world's fourth largest stock market, Dalal Street experienced a sell-off with the Sensex falling over 1,000 points and the Nifty cracking over 1%. The broader market also saw a decline, particularly in mid and smallcap indices. This resulted in investors losing about Rs 8 lakh crore in market capitalisation of all BSE-listed stocks. Despite positive momentum in global markets, banks, oil and gas stocks, FMCG, and metals experienced a downside, while pharma and IT sectors saw buying activity.

Shares of MapmyIndia, formally known as CE Info Systems Ltd., have risen about 104% from the end of March, adding around $675 million in market value on demand for its consumer-facing app Mappls. Some analysts and investors are betting on the companys domestic growth opportunity, while others view its price tag as a barrier.

Domestic equity benchmarks Nifty 50 and Sensex have fallen about 1.3 per cent each over the three sessions in the holiday-truncated week, culminating in a second consecutive week of losses, primarily driven by weakness in the banking sector.

Investors who want to generate a strong alpha and build concentrated portfolios should look at small caps which are largely ignored and offer a higher risk reward for investors