Small caps crushed as St grinds down

Smaller stocks bore the brunt of investor fury as markets continued their downward run on concerns related to growth and diminishing chances of big interest rate cuts ahead.

The S&P BSE small cap index cracked 2.32% to close at a more than 15-month low and the mid-cap index lost 1.90% on a day the benchmark Sensex shed 0.65% to close at 18884.19.

The broader indices witnessed huge selling by domestic and foreign investors. As per provisional exchange data, foreign institutional investors sold equities worth Rs236.72 crore in cash, while the domestic institutional investors were net sellers of stocks worth Rs356.93 crore.

Dipen Shah, head of private client group research at Kotak Securities, said the sentiments were hit by the events that unfolded on Tuesday. “While the DMK pullout has led to uncertainty on political side, the uncertainty on extent of rate cuts by RBI post Tuesday’s policy event seems to have played a part in dampening investor sentiment. Many of the interest rate sensitives along with small cap and mid-cap stocks had run up sharply before the RBI event and people seem to be booking profits in them now,” he said.

The real estate sector was the worst affected, falling 4.67% even as other interest rate sensitive sectors like power, banking and capital goods lost 2.65%, 2.10% and 2.04%, respectively.

P Phani Sekhar, fund manager, PMS, Angel Broking, feels the market is getting nervous that the reforms story may not be as smooth as expected.

This has led to reform-oriented sectors, including banking, getting hit, he said. “People in a risk on environment were betting on high beta and mid cap stocks with an assumption that revival in growth may help them. But now, with growth at risk and RBI passing the ball on to the government, these stocks are seeing sell-off.”

The breadth was extremely negative, with three of every four stocks listed on BSE closing in the red.

@nitinpshri