The Hindu Business Line : Mid & small-cap stocks maintain momentum

Mid-cap and small-cap stocks have been attracting investors’ interest relentlessly. The BSE data on circuit summary, new high/low and advance/decline ratio has revealed the investors’ fancy.

Circuit summary data on the BSE for Wednesday shows that 771 stocks have hit the upper circuit against 54 stocks that hit the lower circuit. Of these, four belong to Group-A.

If a stock hits upper circuit filter, it means there are no sellers and only buyers and vice-versa if it hits a lower circuit filter.

Euphoria

In most of the days in 2007, the upper/lower ceiling ratio has always been in favour of the former in the range of 10:1 to 7:1. Only a few days saw more stocks hitting lower circuit than upper limit.

“When so many stocks go towards the upper circuit filter it shows the euphoria in the market, it also shows that there is a lot of investor appetite and optimism in the entire segment, which mainly consists of small and mid-cap stocks,” according to Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

“Retail participation is getting into these stocks which might be a possible trigger for most of these stocks to have reached the upper circuit filter,” said Mr Sanjay Kothari, Senior Research Analyst, Unitis Towers Wealth Advisors Ltd.

The benchmark Sensex gained 4.91 per cent since a month, whereas BSE-Midcap and BSE-Smallcap index have gone up by 12.13 per cent and 19.33 per cent respectively. The Sensex was up by 1.71 per cent on Wednesday and BSE-Midcap and BSE-Small cap index were up by 2.05 per cent and 3.02 per cent respectively. Another reason for the increasing interest in the mid-cap and small-cap segment is the over run-up of large-cap stocks in the past couple of months that has made investors weary of this segment due to higher valuations, according to marketmen.

“There is a shift of investor interest from large-cap companies to mid-cap and small-cap companies on account of gap in valuations in the large-cap, mid-cap and small-cap segments,” said Ms Gandhi.

“Mutual funds are increasing their exposure to mid-cap and small-cap stocks through their new fund offers, rather than Sensex or Nifty stocks,” added Ms Gandhi.

As many as 358 stocks from the B2-group hit upper circuit, while the T-group accounted for 164, followed by Z-group with 80 stocks.

For the lower circuit, the B2-group accounted for 21 stocks, T-group 14 and Z-group 12. Analysts are not ruling out the possibility of mid and small cap stocks touching new highs due to excessive speculative activity.

“Mid-cap and small cap stocks have lower liquidity levels, which does tend to boost up their stock prices,” said Mr Harendra Kumar, Head-Research, ICICI direct.

While the number of stocks that hit new high stood at 111, there were none that touched its 52-week low.

Among the BSE-500 stocks, 408 stocks advanced and only 91 stocks declined on Wednesday.

“This kind of advance and declines ratio shows a very positive tilt in the market wherein there was more of buying activity happening and less of selling activity,” said an analyst with a brokerage firm.

According to Mr Kothari, close to around 5,000 stocks are below the market cap levels of Rs 1,000 crore and they do not come under the FII investment zone and leaving the entire field to domestic investors.

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