Stock market minnows are lagging behind; take more hits than blue chips

Falling as much as 13% this year so far, BSE’s small- and mid-cap stocks have lagged the benchmark Sensex as experts said those indexes climbed more than the frontline index during the “good times” and that a deeper correction is natural in the current turbulent. time.

Stock markets have faced many headwinds this year with the emergence of geopolitical tensions, inflation fears and relentless selling off of foreign funds.

Experts said there was nervousness in capital markets, both domestic and global, mainly due to these challenges.

The BSE smallcap index has fallen 3,816.95 points or 12.95% this year so far, while the midcap gauge has fallen 2,314.51 points or 9.26%. By comparison, the 30-stock BSE Sensex has lost 3,771.98 points or 6.47% this year.

“The mid and small cap indices had also risen much more than the Sensex during the good times, so it is only natural that they would fall more than the Sensex during the bad times. The rise and fall of the mid and small caps tends to be more pronounced than their large-cap counterparts,” said Rahul Shah, Co-Head of Research, Equitymaster.

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He added that as far as the current trend is concerned, while the markets are not more expensive, they are not cheap either.

“This is a market where quality and growth will be rewarded and where expensive valuations and poor quality will be rejected,” Shah added.

The BSE Small Cap Gauge hit a 52-week low at 23,261.39 on June 20 this year. It had hit its one-year high of 31,304.44 on January 18.

The mid-cap index fell to a 52-week low of 20,814.22 on June 20. It hit its one-year high at 27,246.34 on October 19 last year.

The Sensex hit a 52-week low of 50,921.22 on June 17 this year. The benchmark reached its 1-year high at 62,245.43 on October 19, 2021.

“Over the past six months, there has been some nervousness in capital markets, both globally and in national markets, and it is clear that this nervousness has been fueled by challenges on the economic front, geopolitical tensions, a high inflationary environment, higher interest rates, intensive foreign institutional investment and selling to investors.

“So in the face of that, it looks like mid and small caps have underperformed, but we also have to keep in mind that mid and small caps have significantly outperformed over the past two-plus years,” said Sachin Shah, fund manager, Emkay Investment Managers. Limit.

Small stocks put on a stellar show in 2021 with returns of 63% amid a dream run in the stock market.

In 2021, the mid cap index gained 7,028.65 points or 39.17% while the small cap index climbed 11,359.65 points or 62.76%. By comparison, the Sensex jumped 10,502.49 points or 21.99% last year.

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The Sensex had gained 15.7% in 2020. Small and mid cap stocks had gained up to 24.30% in 2020.

According to market analysts, small stocks are generally bought by local investors, while foreign investors focus on blue chips.

“We have been in a correction phase since October 2021 or we can say that a short-term bearish phase and generally, mid and small caps tend to see large movements on both sides compared to front-line stocks.

“Inflation is a key trigger for the market correction and we know that large companies are better placed to pass on rising input costs, while mid- and small-cap companies need to cut margins, which is a another reason for their underperformance,” Sunil said. Nyati, managing director of Swastika Investmart Ltd, said.

Indian markets remained resilient despite numerous headwinds and record selling by FIIs (foreign institutional investors) thanks to the national currency, Nyati added.

“Going forward, all eyes will be on the quarterly results as they will be the true indicator of the health of India Inc. If the quarterly results are better than expected, we might see some momentum, otherwise the markets might continue to remain limited. some pockets are doing well while others may be feeling the pressure,” added Rahul Shah.

According to Nyati, it looks like the worst is behind us in terms of inflation, so we can expect the Indian stock market to rise from here.

“If FIIs come back into the market, we can expect large cap stocks to outperform in the short term, but over the long run, mid and small cap stocks tend to outperform as we are in a bull market. long term,” he added.

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