The Hindu Business Line : Momentum stocks lead declines

Chennai, Nov. 21 Stocks and sectors that gained the most in value from mid-October appear to have borne the brunt of the market meltdown on Wednesday.

Select fertilizer, refinery and smaller banking stocks that displayed strong momentum over the past few weeks have shed anywhere between 9 and 14 per cent of their value on Wednesday alone, as investors rushed to take money off the table.

The decline of 3.5 per cent in the BSE Sensex and 4.7 per cent in the BSE Midcap index for the day may not seem sharp after the hefty gains in these indices over the past month.

But these numbers do not adequately capture the sharp reversals that some stocks suffered on Wednesday.

Top losers

The BSE’s listing of top losers for the day shows that the recent outperformers were the worst hit by the wave of profit-booking. Fertilizer stocks such as Chambal Fertilizers, GNFC and RCF, which surged between 45 and 78 per cent over the past month, have given away between 10 and 14 per cent of their value in Wednesday’s correction.

The accompanying table shows how the top losers within the BSE’s A group, were all stocks that had rallied at a scorching pace in the preceding month.

This pattern of outperformers taking a hit has also been repeated across sectors, with the BSE Metal, Capital Goods and Power indices being the worst performers on Wednesday, while the BSE IT index lost the least among the sectoral indices.

The sharp gains in mid-cap and small-cap stocks since mid-October (the time SEBI initiated the controls on PN routed investments), appear to have been driven mainly by retail investors.

FII activity in the Indian stock market (cash segment) has been quite muted over this period; they have remained net sellers so far in November.

Domestic mutual funds too have adopted a negative to passive stance over this period, remaining net sellers in October and making small net purchases of Rs 178 crore this month.

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