India Breaking Buzz

Most small- and mid-caps tumble in two years

<p>Small and midsized company shares plummeted on Wednesday due to concerns that the “bubble” created by persistent purchasing in certain areas would pop at any moment.</p>
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<p>The selling has accelerated in the last three sessions following Madhabi Puri Buch’s, Chairperson of the Securities and Exchange Board of India (Sebi), comment that there are pockets of froth in the small and mid-cap space in the equity markets that have the potential to become a bubble and burst, affecting investors. The larger market has been under pressure since the capital market regulator Sebi moved late last month to moderate inflows into small and midcap schemes.</p>
<p>On Wednesday, the Nifty Midcap 100 sank 4.4% while the Nifty Smallcap 100 plunged 5.3%. This was the largest one-day decline for the two indexes in over two years. Only one stock in the Smallcap 100 and two in the Mid-cap 100 were able to close in the green due to the intense selling.</p>
<p>Senior vice-President at Master Capital Services Arvinder Singh Nanda said that mid- and small-cap companies seem to be the most expensive in relation to their prospects for profit growth.</p>
<p>Although a significant double-digit drop is possible, it is not certain. These industries have already had corrections, and Nanda said that if they continue, there may be a more noticeable decline.</p>
<p>According to Prabhudas Lilladher’s Shiju Koothupalakkal, a technical research analyst, investors should hold off on adding more Mid-cap and Smallcap companies until there is clear evidence and confirmation of a rebound for the indexes. According to Koothupalakkal, the Mid-cap index needs a significant rebound to break above the 50EMA zone of 47,700 level in order to generate some confidence and then expect further climb.</p>
<p>The market attitude is also being affected by the mandatory AMFI-SEBI stress test. In order to determine whether the portfolios are sufficiently liquid to handle an unexpected spike in redemptions, Sebi had instructed the Association of Mutual Funds India (AMFI) to make sure asset management companies (AMCs) prepare risk disclosures for investors regarding mid-small cap schemes and conduct stress tests.</p>
<p>Big names in the mutual fund business have now begun to cut down on their exposure to midcap and smallcap firms. Raids on suspected Hawala operator and Dubai-based trader Hari Shankar Tibrewala contributed to a sell-off in small-cap stocks to which he is exposed at this period of heightened scrutiny.</p>

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