Nifty Smallcap’s biggest plunge in seven years! These 2 factors triggered nearly 23% fall in 2018

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Mumbai | Updated: July 19, 2018 11:55:31 AM

The Nifty Smallcap Index has lost nearly a quarter of its value in 2018 so far, leaving investors with fairly large losses. Its 22.8% plunge this year is the biggest since 2011.

Historically, Nifty Smallcap index has ended in the red only thrice since 2005, with the biggest loss of 71% in 2008, followed by 33.9% in 2011.

The Nifty Smallcap Index has lost nearly a quarter of its value in 2018 so far, leaving investors with fairly large losses. While the index has yielded a negative return only once in the last six years through 2017, its 22.8% plunge this year is the biggest since 2011. Historically, the gauge for small-cap companies has ended in the red only thrice since 2005, with the biggest loss of 71% in 2008, followed by 33.9% in 2011.

About half of the index members have lost 30% each since the beginning of the current calendar year, with Reliance Naval and Engineering and Hindustan Construction Co (HCC) plunging as much as 75.9% and 75.6%, respectively. While 11% of the index constituents lost more than half of their value, 67 stocks came off more than 20% in 2018.

The combined market capitalisation of the index has fallen by Rs 1.3 lakh crore to Rs 4.7 lakh crore. In absolute terms, Rain Industries lost the most value as the market capitalisation of the cement maker has eroded by Rs 6,650 crore since the beginning of the year. It is followed by Jet Airways (Rs 5,956 crore) and Reliance Communications (Rs 5,375 crore). Of the 137 trading sessions so far this year, 73 days saw the small-cap gauge closing in the red.

UBS Securities, which reiterated its underweight ratings on small and mid-cap indices for 2018, cited rising rates and moderating flows as concerns. The brokerage observed the inflows into local equity mutual funds remains positive, but they started slowing in the first three months of 2018.

Inflows during the three months to June did not slow further. “Despite the correction in small and mid-caps, their valuation premium to the Nifty is being sustained above the peaks of 2007-08,” wrote Gautam Chhaochharia and Sanjena Dadawala of UBS Securities.

Only 10 companies of the Nifty smallcap index could give double-digit growth in 2018, with companies like NIIT Technologies, HEG, Tata Elxsi and Graphite India leading the pack. Thus far in 2018, the benchmark Nifty50 has clocked a gain of 4.3%.

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