Mid-caps, small-caps plunge to new lows

In­dices see big­gest monthly drop since 2008 cri­sis

Business Standard - - FRONT PAGE - SAMIE MO­DAK

The BSE Small­cap and Mid­cap in­dices have plunged 16 per cent and 13 per cent, re­spec­tively, in Septem­ber — their big­gest monthly fall since Oc­to­ber 2008.

The broader mar­kets have marked with may­hem the 10th an­niver­sary of the col­lapse of Lehman Broth­ers in the very month it hap­pened. Un­like in 2008, when the Sensex too had crashed 24 per cent, the head­line in­dices fell 6.3 per cent this month, their worst monthly per­for­mance in 31 months.

The ge­n­e­sis of the fall this month has been sell-offs in the emerg­ing mar­ket, fall in the ru­pee, ris­ing bond yields, and wan­ing risk in­vestor ap­petite. Also, lofty val­u­a­tions — the Sensex and Nifty touched all-time highs in end-Au­gust — cou­pled with de­te­ri­o­rat­ing macroe­co­nomic fun­da­men­tals amid ris­ing crude prices, pro­vided lit­tle com­fort even to peren­nial stock mar­ket bulls.

The ve­loc­ity of the mar­ket cor­rec­tion in Septem­ber was so fierce that nine stocks de­clined for ev­ery one that ad­vanced.

The BSE Small­cap in­dex saw 877 of its 952 com­po­nents end with losses dur­ing the month, while 102 of 110 stocks in the BSE Mid­cap in­dex saw neg­a­tive re­turns. The breadth wasn’t any bet­ter for the Sensex, where 26 com­po­nents ended with losses and only five, most of them tech­nol­ogy stocks, man­aged to de­liver pos­i­tive re­turns.

Af­ter the lat­est sell-off, the small­cap in­dex is in deep bear mar­ket ter­ri­tory, hav­ing cor­rected 28 per cent from their peak in Jan­uary. The BSE Mid­cap in­dex is on the verge of slip­ping to bear ter­ri­tory, hav­ing come off 19 per cent from its peak. The Sensex, on the other hand, is down 7 per cent from the peak touched on Au­gust 28. This year’s cor­rec­tion in small- and mid-caps comes af­ter four years of out­per­for­mance to the bench­mark in­dices.

Be­tween Jan­uary 2014 and Jan­uary 2018, both the BSE Small­cap and Mid­cap in­dices saw nearly three-fold rise, even as the Sensex gained around 80 per cent. In Jan­uary, the priceto-earn­ing (P/E) mul­ti­ples of small- and mid-cap in­dices had climbed to a record high. The turn in sen­ti­ment has led to sig­nif­i­cant ero­sion in the value of sev­eral com­pa­nies. To il­lus­trate, 64 stocks in the BSE Small­cap in­dex have lost nearly a third of their value in Septem­ber. Sim­i­larly, 20 stocks in the BSE Mid­cap in­dex lost a fifth of their value this month. Most of these stocks be­long to the fi­nan­cial sec­tor. Among the Sensex com­po­nents, shares of YES Bank plunged 47 per cent, Maruti Suzuki have dropped 19 per cent, and Tata Mo­tors has de­clined 18 per cent in Septem­ber.

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