The smallest stocks have been the biggest winners in the market rally since February 2016. Over the past 13 months, 581 stocks, a quarter of the 2,360 quoting on the BSE, have doubled or more, pricewise. Of these, eight in 10 is a micro-cap (market capitalisation of less than ₹2,000 crore).

Similarly, of the 1,147 stocks that have gained 50 per cent or more since February 2016, nearly 80 per cent are micro-caps. Also, micro-caps form nearly 90 per cent of the 172 stocks whose prices have tripled or more in this period. Except for one, all the 30 stocks that have quintupled or more are micro-caps.

The big gainers

Topping the list of multi-baggers is pharma stock Medicamen Biotech (₹575 crore market-cap). From ₹43 at the end of February 2016, the stock has jumped almost 13 times to ₹547.

Interestingly, Medicamen Biotech is also the biggest gainer since the market low in August 2013 — the stock, then trading at just ₹6, has risen more than 9,000 per cent in less than four years.

Next on the list of the biggest winners are SVP Global Ventures, Sinner Energy India and Prime Securities, all up around nine times since February 2016. SVP Global Ventures manufactures yarn, Sinner Energy India is a trading company, while Prime Securities provides financial and transaction services.

While nearly all are micro-caps, the multi-baggers are from diverse sectors. The winners include metal stocks such as Tata Metaliks and Indian Metals & Ferro Alloys, chemical makers such as Thirumalai Chemicals, and Jayant Agro Organics, hydrocarbon service provider Asian Oilfield Services, software stock MosChip Semiconductor, and socks-maker Nutricircle.

These stocks have gained six times or more since February 2016.

Beyond the comfort zone

The rally may have been overdone in some of these stocks. Along with their prices, the valuations have skyrocketed, moving ahead of comfort zones.

For instance, the price-to-earnings (PE) ratio, based on trailing 12-month earnings, of Medicamen Biotech is now about 100 times, much higher than the valuation of big pharma firms. Sure, many of these companies have been posting good financial growth. SVP Global, for instance, quadrupled its profit in the nine months ended December 2016, compared with the year-ago period, while Medicamen and Sinner Energy swung to profits.

Even so, the massive rally in smaller stocks warrants caution, given their inherently volatile nature.

Also, the surge in some of these multi-baggers does not seem to be backed by the company’s financial performance. For instance, Asian Oilfield Services and Nutricircle are loss-making companies.

Many of these small stocks have been assigned the risk group ‘T’ or ‘XT’ or ‘XD’ by the BSE, indicating higher attention from a regulatory due diligence and monitoring standpoint.

Massive declines, too

While micro-caps have been the top winners in the bull market over the last year, they have also been the biggest losers.

Since February 2016, as many as 73 stocks lost 50 per cent or more of their value — all of these big losers are micro-caps. The stock of Tree House Education, for instance, crashed more than 75 per cent over concerns about unfavourable merger terms.

ABG Shipyard is down about 56 per cent due to debt concerns. These sharp declines highlight the key risk in micro-stocks — the higher they go, the harder they can fall.

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