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Benchmark indices hitting new highs recently has benefited only few investors because only nine stocks, namely TCS, Infosys, Kotak Mahindra Bank, Asian Paints, Hindustan Unilever, YES Bank, Reliance Industries, M&M and IndusInd Bank from S&P BSE Sensex are giving handsome returns since January 1 and are up in the range of 20-50 per cent. Of the rest, 18 stocks are flat to down up to 42 per cent.
If the universe is expanded to BSE 500, the scenario is even more grim as majority of the stocks are bleeding profusely given the free-fall in small- and mid-cap indices. Over 300 stocks out of BSE 500 — especially those with issues in management quality, corporate governance and business prospects — are down in the range of 10-90 per cent.
The biggest losers are Kwality, Vakrangee, PC Jeweller, Reliance Naval Engineering and Manpasand Beverages, according to data provided by Capitaline.
“There are not many good opportunities except fast-moving consumer goods, information technology and select private financiers.
“Sectors such as infrastructure/ engineering, pharmaceuticals, cement, real estate and telecom are facing issues,” pointed out G Chokkalingam, Founder of Equinomics Research and Advisory. Valuation discomfort (Nifty 500’s valuation of 30.5 times) has been the biggest reason for the correction in mid- and small-cap stocks (thanks to the robust rally seen in small- and mid-cap indices in the last several years ending 2017) followed by stringent regulations such as long-term capital gains tax, mutual fund reclassification and additional surveillance adding fuel to the fire.
UR Bhat, Managing Director at Dalton Capital Advisors, believes that small- and mid-cap companies are still trading at a premium to the large-cap index. “It takes some time for mid- and small-cap indices to gain confidence of retail investors. I don’t see revival in the indices until next elections,” he said. However, others, namely Angel Broking, believe that the indices are in the process of bottoming out. According to Dhiraj Relli, MD & CEO, HDFC Securities, with improvement in earnings, selective mid- and small-cap stocks are on track for a decent recovery in the next one year.
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