Since the meltdown in the stock markets in mid-January, the small- and the mid-cap stocks suffered more than the heavyweight stocks. The Sensex plunged 21% from its peak of January 8, but the fall in BSE Small and Mid-cap indices, which too were at all-time highs in mid-January, is steeper. The BSE Small-cap index went down by 33% and the BSE Mid-cap index 26%.
Anil Advani, head of research at SBICAP Securities believes that since the meltdown the valuations of the large-cap companies had become so compelling that investors leveraged in the small- and mid-cap stocks withdrew money from them to invest in the former.In an uncertain market, investors felt safe in investing in heavyweights as these stocks are more liquid than their small- and mid-cap counterparts.
The small- and mid-cap indices may have fallen 26% to 33% but the range of fall even in these segments varied when individual stocks are taken into account. Stocks like Orient Paper & Industries Ltd, Arrow Webtex Ltd, City Union Bank Ltd and Walchandnagar Industries Ltd of the small-cap space fell by more than 90% from January 8 to March 4. In the same period, mid-cap companies like GVK Power & Infrastructure Ltd fell by more than 94% while Rajesh Exports Ltd, Jagran Prakashan Ltd, Global Broadcast News Ltd slipped by more than 80% each. Experts believe that the small- and the mid-cap stocks are favorites more among retail investors than among institutional investors and they are highly momentum-driven. Any positive or negative news always takes a toll on the small- and mid-cap stocks first. Some experts also believe that the level of speculation in these segments is greater, which makes these stocks highly volatile. It is very usual for these stocks to touch the upper circuit in one week and the lower circuit the other week, they added.
There were some companies which bucked the trend and gave positive returns in the range of 5% to 126%. Stocks like SEL Manufacturing Company Ltd, Bosch Chassis System India Ltd belonging to the small cap space gave positive returns of 126%, 60% and 10% respectively. In the Mid-cap space companies like Rei Agro Ltd, Gujarat NRE Coke Ltd and Jain Irrigation Systems Ltd managed to give returns of 41.85%, 13.12% and 5.57% respectively during the period.