Midcap, smallcap indices enter bear grip! More pain in the offing?

NEW DELHI: Key midcap and smallcap indices have entered bear grip, falling over 20 per cent from their all-time high levels, even as the larger peers are down about 13 per cent during the same period.

Analysts said while a technical bounce may come anytime, pressure on midcap and smallcap pockets is likely to remain till the US Fed is done with rate hikes and geopolitical tensions ease.

Data showed the BSE Midcap index hit a low of 21,757.60 level in Wednesday's trade, which was 20.14 per cent below its 27,246.34 level touched on October 19, 2021. The BSE Smallcap index on the hand hit a low of 25,028.35, which was 20 per cent lower than 31,304.44, the high it hit on October 18, 2021.

A total of 48 of 107 BSE Midcap stocks are down over 20 per cent. Info Edge has fallen 46 per cent since October 19, 2021. Jubilant FoodWorks has plummeted 45 per cent, Nuvoco Vistas Corporation and Godrej Properties have plunged 43 per cent each. ICICI Securities and RBL Bank have tanked 41 per cent each during the period.

Stocks such as Nippon Life India AMC, IRCTC, Mindtree, The New India Assurance Company, Tata Communications, Whirlpool Of India, Endurance Technologies, SAIL, Indraprastha Gas, BHEL and 3M India have declined over 30 per cent during the period.

Midcaps and smallcaps are high beta stocks, meaning they plunge more when the market falls and surge more when the market rises.

"When the engine (read largecaps) is not doing well, how can you expect the bogies to do well? Midcap and smallcaps react more as they have shallow depth due to low volumes," said Deepak Jasani of HDFC Securities.

Besides, it is also true that such companies find it more difficult to pass on the input cost in a rising inflation scenario than larger peers, Jasani said.

Jasani added that investors of midcap and smallcap stocks should stick to asset allocation, do frequent portfolio rebalancing, book profits at regular intervals and raise cash so that it can be deployed when the market falls.

In the BSE Smallcap pack, at least 25 stocks have tumbled 50-75 per cent. Some 378 index stocks are down over 20 per cent since October 2021 levels.

Future Lifestyle Fashions, KBC Global, Future Retail, Future Consumer, Solara Active Pharma Sciences, Future Supply Chain Solutions, Dilip Buildcon, Yaari Digital Integrated Services, Future Enterprises and Gayatri Projects are some of the stocks that have fallen 60-75 per cent since October 2021 levels.

An unhealthy trend in the market is retail investors chasing low-grade cheap stocks, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. "The only sensible strategy in this highly volatile environment is to buy small quantities of high-quality stocks for the long-term and refrain from speculation," he said.

In a recent interview to ET NOW, Siddharth Vora of Prabhudas Lilladher said booking out losses or profits is dependent on many variables like what is my horizon, why have I bought a particular company, and has anything materially changed in the sector or growth outlook.

"But if the portfolio is constructed with a trading view, caution is demanded. Although if the time horizon is very long and enough research has been done in terms of the sustainability of a franchise over a long period of time, one could ride this cycle," he told ET NOW.