It has been a d?j? vu impact as regards the mid-caps and the small-caps. The only difference is the intensity, length of the assault. With the pulverising Sensex movement, the spilling-over impact has been transferred to the mid-caps and small-caps. And to add to the misery of investors is the substantial pinch left in the mid-, smallcaps.
Explains Muthuraman Mudliar, a broker, ?The price to earnings multiples of both the BSE mid-cap and small-cap indices had moved to over 28 times in the first week of January. However, due to the plummeting of the Sensex, the PE multiples of the mid- and small-cap indices are moving in the range of 21-22 times.? The BSE Midcap Index has fallen 22%; while the BSE Smallcap Index has shed 21.4 % in value. Both indices have suffered much higher erosion than the BSE Sensex (about 15 %down) over the same period.
But how different is this downtrend from the May 2006 fall? Explains Girish Solanki, mid-cap analyst with Angel Broking, ? The fall this time has been steeper than the May Mayhem and one cannot compare the two. But one unique feature of this fall is the availability of the large-caps at a relatively good level.?
This makes sense considering that large-caps have demonstrated steeper fall than the mid-and small-caps. And hence these stocks can be looked from the prism of potential investment avenues. Hence, the interest in the mid-and small-caps is waning and it seems sensible to focus on the relative fall in the largecaps. Agrees Harishankar Krishnan, head-research of a broking firm, ? At this juncture, investors should invest in largecaps, which have management visibility, and good track record.? Though the mid-and small-caps have fallen around 10-11% in comparison to the Sensex, says Krishnan, it would continue to move in the negative zone. Also an important thing to note here is the circuit filter factor. A lot of mid-and smallcaps have circuit filters, hence there is a limit for an upside and a downside. So, the possibility of getting rid of a stock, which has been worst hit in these indices, is slim.
An analysis of the May 2006 fall shows that the BSE Midcap Index took almost seven and a half months, while the BSE Smallcap Index took eight months, to recover its earlier level. Now, considering the deeper fall this time, the time these indices would take to recover may be a longer one. Hence, experts advise investors to either remain invested or change their focus to large- caps, which would see an appreciation in their prices as soon as the Sensex recovers.