The Hindu Business Line : Mid, small-cap stocks under-perform

Kolkata/Chennai, Oct. 8 Mid-cap and small-cap stocks today under-performed the benchmark indices – the 30-share Sensex and 50-share Nifty. However, analysts appeared divided over the possible repeat of history in the two segments, which returned more than the large-cap stocks.

According to Mr Arun Kejriwal, a market analyst, historically mid- and small-cap stocks under-performed in times of corrections. “It is because the risk is more and exit route in relatively less. The stocks in this space, which figure also in the futures segment, get beaten more as investors sell these counters early to set off losses in the large caps”.

In his opinion, liquidity is always a concern on the downside and dip in sentiment generally causes more collateral damages.

But in view of higher market returns so far this year and expectation of better performance as also relative lack of opportunities in the large caps in terms of valuation may set a different trend, felt Mr Ajay Jaiswal, an analyst with Angel Broking.

Mid and small-cap stock till recently were the darling of the markets, which gave better returns than large caps. “For example, from January 2 till today, the Sensex provided a market return of 23 per cent and the Nifty 26.8 per cent. But the BSE Mid-cap returned 25.5 per cent and CNX Mid Cap 28.75 per cent during the same period. In quarter to June 30, 2007, CNX Mid Cap had given a return of 27.4 per cent, while Nifty gave 18.8 per cent. BSE Mid Cap returned 25.2 per cent compared to 17.5 per cent the Sensex in the first quarter of 2007-08,” he pointed out.

Second quarter earning expectations for mid and small-cap stocks are higher than the heavyweight stocks. “This may stall a stampede if large-scale correction takes place in the short run,” Mr Jaiswal added.

A Chennai-based broker said that going by the trading in the past week, mid/small-cap funds, seemed to moved into cash by selling stocks.

Today, while the Sensex and the Nifty declined by 1.59 per cent and 1.94 per cent respectively, the BSE midcap and small-cap eased by 3.66 and 3.31 per cent respectively. Sensex advance-decline ratio was 2:23. There were only 124 advances against 393 declines in B1, B2 and T group stocks on the BSE representing four losers for every one closing gainer.

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