The Hindu Business Line : Mid-caps go back to discount to Sensex

Repeating the classic pattern of the past few years, mid- and small-cap stocks have witnessed much steeper declines than the Sensex or the Nifty during the market rout over the past two weeks.

This correction has pushed PE multiples of the mid- and small-cap stocks, which had climbed to a premium over the Sensex in early January, back into a discount.

The PE multiples for both the BSE mid-cap and small-cap indices had moved to over 28 times trailing earnings, a shade over the Sensex PE, in the first week of January.

With the recent reversals hitting them hard, the PE multiples for the mid/small-cap indices now hover at 21-22 times, restoring their discount to the Sensex multiple of about 24 times.

From its peak closing value on January 4, the BSE Midcap Index has shed 22 per cent; while the BSE Smallcap Index has shed 21.4 per cent in value.

Both indices have suffered much higher erosion than the BSE Sensex (about 15 per cent down) over the same period.

But even these index values may not really capture the damage that portfolios of many retail investors may have suffered in this meltdown! Several stocks in the mid- and small- cap baskets have had anywhere between 40 and 50 per cent shaved off their highs in this two-week span.

A clutch of fertilizers stocks, led by Nagarjuna Fertilisers and Chambal Fertilisers, have led the list of losers in the mid-cap basket, with mid-sized realty firms also facing sharp reversals.

Losers in the small-cap basket have however, displayed no sectoral trend, with stocks such as HTMT Global, Kirloskar Ferrous, House of Pearl Fashions and Welspun India losing the most.

Are there any stocks at all that have held up well under the onslaught of the past fortnight? Yes, there are several both among the mid and small-cap stocks. Essar Shipping (20 per cent), Balkrishna Inds (up 12 per cent) and Jai Corp (9 per cent) have been mid-caps which posted gains over this period, while smaller financials and bank stocks – Centrum Capital (up 34 per cent), Dhanalakshmi Bank (18 per cent) and Geojit Financial (16 per cent) were key gainers among the small-caps.

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