Spooked by Yellen, Midcaps Go Downhill
Mumbai: Mid- and small-cap shares led the sell-off on Dalal Street on Wednesday after US Federal Reserve chief Janet Yellen’s averred last night that rate increases are on track. Also, disappointing quarterly results from Tata Motors and Sun Pharma turned the sentiment negative. Indian shares underperformed their Asian peers with benchmark indices falling about 0.7% on Wednesday. The Sensex dropped 183.75 points, or 0.65%, to close at 28,155.56. The Nifty declined 67.60 points, or 0.77%, to end at 8,724.70. The mid-cap index dropped 1.2% and the small-cap index declined 1.5% as nervous retail investors booked profits amid concerns that share valuations were stretched.
“The selling was intense in the mid and smallcap space as many of them are richly valued following a sharp rally in them since the beginning of the year,” said A K Prabhakar, head of research, IDBI Capital.
However, fund managers said midcap stocks could rebound sharper once sentiment improves.
“There are always opportunities to choose within mid-caps where valuations are attractive,” Dhiraj Sachdev, senior fund manager at HSBC Global Asset Management. “Within mid-caps, we like agrochem, specialty chemicals, gold mortgage finance and home textile companies”.
Yellen said on Tuesday the Federal Reserve intends to raise rates three times this year and possibly even in the upcoming meeting in March, sending the dollar soaring and sparking a sell-off in bonds there.
At home, foreign investors’ reaction to the possibility of US rate increase was that of indifference. Foreign portfolio investors bought shares worth Rs 225.84 crore, while domestic institutions too bought to the tune of Rs 248.98 crore.