Fall in small and midcaps overdone

On August 29, 2018, all BSE-listed stocks hit a record peak of over Rs 159.34 lakh crore. However, subsequently, their market capitalisaton fell a whopping Rs 20.80 lakh crore as on last Friday. Since the beginning of September, over 4,000 stocks, other than top 15 Nifty stocks, have lost about 20 lakh crore of total market values. Small and mid-cap (SMC) stocks alone lost close to Rs 15 lakh crore from their January 2018 peak values. 

Several hundreds of stocks in the SMC space already beaten down 40% to as high as 70%. Many quality SMC stocks trades at even single-digit PEs and some private banks in the SMC space trade at even 20% discount to their adjusted book values. Though the market conditions are quite adverse, the mutual fund industry managed to garner Rs 7,727 crore through systematic investment plans in September, a surge of 40% from the year-ago period. Total SIP contribution in the first half of the current fiscal rose 52% to Rs 44,487 crore as compared to Rs 29,266 crore in April-September 2017.

The foreign investors (FPIs) have sold around Rs 18,000 crore worth of equities in the first two weeks of October. However, any major sell-off of Indian equities by them is most unlikely. While rupee is down about 15% year to date, most large cap stocks are down minimum 10% and many large midcap stocks, in which the FPIs have invested, are down as much as 20% to 40% from their 52-week highs. So, the FPIs are unlikely to press any major sell-off from the Indian equity markets as any such move would compound their losses in dollar terms.   

Most NBFC stocks hit life-time highs on August 29, but in the following just three to five weeks, many of them hit 52-week lows. It is true that many NBFCs adopted an aggressive growth strategy that ended up in asset-liability mismatch in the short term.  Thus, it is time for bargain buys of quality stocks in the SMC space cutting across several segments like PSUs, NBFCs, private banks, manufacturing, etc as the current meltdown is overdone.

The writer is founder & managing director at Equinomics Research & Advisory