Poll uncertainty keeps midcap, smallcap stocks in doldrums

After a painful year in 2018, it seems bad days are not over for the broader market. The midcap and smallcap stocks continue to suffer this year too.

The BSE Midcap index has lost 6.49% from January 1 till February 6. The index fell 13.44% in calendar 2018. On the other hand, the BSE Smallcap index has fallen 7.44% since January 1.

The Smallcap index lost 23.72% last year.

In contrast, Sensex has gained 3,162.48 points, or 9.35%, from January 1, 2019, while the broader Nifty has surged 626.90 points, or 6.01%.

The BSE benchmark on Wednesday reclaimed 37000 mark intra-day before ending the session at 36975.23, up 358 points over the previous close. The Nifty closed at 11062.45, up 128 points over the previous close.

Investors are cautious about a lot of factors and one of them is general elections, experts said.

"There are two reasons which are leading to this fall. Retail investors have seen a lot of loss since May last year. So, they have no bargaining power right now. Also, before elections, people are very cautious. These are the main reasons," said G Chokkalingam, founder and managing director at Equiomics Research and Advisory.

Analysts believe that regulatory changes adopted by the exchanges, Securities and Exchange Board of India and the Reserve Bank of India are also reasons for the subdued performance. "Among losers in small and midcap space were companies with high unsustainable debt, companies with corporate governance/accounting issues, some companies from power, real estate, infra, commodities (including steel), textiles, NBFC, etc. We may keep witnessing a repeat of this situation in select companies in this space," Deepak Jasani, head of retail research at HDFC Securities, said.

However, the large-cap index has gained 3.94% this year. "Shifting is happening from midcap to multi-cap stocks right now," said Rahul Shah, VP-equity advisory at Motilal Oswal Financial Services. "Performance in midcap has already bottomed. So, the rout will not continue for very long now. Also, there are many no big major disappointment for the market right now. Nothing big happened in the budget, the global events are also favourable," Shah said.

But the earnings still continues to be a concern for the Street.

"Earnings growth has so far not been able to excite market participants. Nifty EPS forecast has been seeing downward revisions through the year over the last few years, and one is not sure whether the same situation will prevail even in the current year," Jasani said.

Analysts also believe that the pain will not continue for a long time. The broader market may see a change in performance before the elections. "But the fall will not continue for a very long time. Before the elections we may see some reversal happening in the midcap and smallcap space," Chokkalingam said.

On Wednesday, the BSE Midcap fell 0.12%, but the Smallcap rose 0.05%.

DIVERGENT WAYS

• The BSE Midcap index has lost 6.49% from January 1 till February 6, while the Smallcap index fell 7.44%
   
• In contrast, Sensex has gained 3,162.48 points, or 9.35%, from January 1, 2019, while the broader Nifty has surged 626.90 points, or 6.01%.