Investors in small and mid cap stocks have suffered the highest erosion in their portfolio value ever since the market has started correcting from November 2010. Since the beginning of the year, the BSE small cap and mid cap indices have fallen 26.27% and 21.85% respectively on the bourses as against a fall of 14% for largecap indices of Sensex and Nifty.
The lackluster show by small and mid cap stocks comes after their relative out-performance of the broader market in the past two calendar years. In 2009 and 2010, the BSE mid cap index generated a return of 102.39% and 10.34% respectively as against a BSE Sensex gain of 76.35% and 3.49% respectively.
Experts attributed the lower participation in the small and mid cap counters to extreme risk aversion which is typical in a falling market. ?Normally when the market sentiment is negative, investors avoid buying small and mid cap stocks and stick to blue chip companies whose share price tend to be relatively stable (during this period),? said Sandeep Sabharwal, head of PMS, Prabhudas Leelladhar.
Sabharwal added that the rising interest rate had also added to negative investor sentiment towards small and midcap stocks as a rise in interest adversely impacts small and mid sized firms in its expansion plans. ?Large cap companies have various avenues to raise funds which is not the case with small and mid sized firms,? he added.
?Large cap companies with huge inventory and assets have the pricing power to raise funds at reasonable cost from multiple avenues. When the cost of raising debt in the domestic market shoots up, they have the ability to even tap the overseas markets for their fund raising plans However, the small and mid sized firms lacks this ability,? said Aneesh Srivastava, CIO, IDBI-Fortis Life Insurance.
Since November 2010, FIIs have bought equities worth $4.13 billion till date. But experts add that the valuations at some of the small and mid cap counters looks quite attractive after steep correction. In the past one month the BSE small and mid cap have fallen just 3.39% and 2.34% respectively as compared to Sensex fall of 4.47%.