It has been a good run for mid-cap and small-cap stocks over the last few weeks. The stocks that were beaten down the most since the meltdown started in January, have incidentally been among the best performers. But market watchers caution that a broad-based upswing of the past is unlikely to be repeated. Instead, investors will have to be careful about what they are buying this time round, given the changed macro-economic situation.
Brokers caution that in many cases, operators who had loaded up on mid-cap and small-cap shares in cohorts with promoters, are now trying to dispose the shares when the going is good. That being the case, experts feel there are still a good number of stocks available at reasonable valuations. But investors will have to do their homework before buying the stocks.
“I think that for the next one month or so, there would be lot of action in the mid and small-cap space,” says Deepak Sawhney, head-research at Networth Stock Broking. “Many funds dedicated to mid and small-cap stocks are sitting on huge cash. We believe that the story there is set for the next six months. Moreover, returns from this space would be comparatively higher than the known large stocks,” he adds.
Experts say what was seen in the last few months was largely due to the over reaction as people were over-leveraged and forced to sell. The impact cost of selling in downtrend was also much higher as investors suddenly became risk averse.
Bargain hunters have netted themselves a rich haul.
Even though the BSE-500 index has gained only 14% in the last one month, individual stocks have given spectacular returns. Stock prices of 69 companies have surged over 50% from their lows of June. Around 175 companies have given returns between 25% and 50%. Similarly, 117 and 32 companies have given a return of 10-25% and 0-10%, respectively. Till a few weeks ago, 400 out of the 500 stocks had been languishing at 52-week lows.
But analysts also caution that mid and small-cap companies have a higher beta than the market and are more prone to volatility in the markets on either sides. “Therefore, investors over react when it comes to mid and small-cap stocks. They were hammered so much that many companies were almost going for a song,” adds Mr Sawhney.
Companies that were on the receiving end included IOL Netcom, Asian Electronics, Ansal Properties, GTC Industries, and Gulf Oil that were beaten down out of shape. Share prices of these companies have fallen between 70% and 80% from their highs since the beginning of the year. For example, Asian Electronics, whose share price stood at Rs 521 on January 1, had fallen to Rs 68 last month. Lok Housing had fallen to Rs 40 from its high of Rs 390 in January.
