Small-cap stocks have faced significant pressure in recent sessions, even as benchmark indices reached new record highs. Investors in these stocks enjoyed a remarkable run over the past year, driving up valuations to expensive levels.
Analysts note that even minor market corrections are prompting profit-taking among investors. The Nifty Small Cap 100 index has declined by nearly 3% this week, while the Nifty 50 has experienced a 0.51% increase during the same period.
This indicates a shift in momentum towards large-cap stocks, as they underperformed when small-cap stocks skyrockted. Investors are now finding attractive valuations in large-cap stocks compared to their smaller counterparts.
In addition, markets regulator SEBI has introduced stress tests for the fund houses to undertake amid growing concerns about the valuations of small-cap stocks. The Securities and Exchange Board of India has reportedly asked the mutual fund houses that operate small-cap funds with a large corpus to share data on their holdings in the total free float of small-cap stocks.
Also Read: BSE Smallcap falls 2%; what should be your strategy for smallcap segment?
Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the divergence between large and small-cap stocks is likely to continue since valuation in the broader market remains highly elevated and the regulator has sent a clear message regarding the froth in the segment.
“Therefore, investors have time, even now, to switch from small caps to fairly valued large caps and partly to fixed-income products. At this stage in the market, safety should be given priority over return,” he added.
Also Read: Why Sebi is worried about small-cap mutual fund schemes
Amid this recent correction, 15 stocks have seen declines from 15% to 30% from their one-year highs. It’s worth noting that all these stocks have recorded multibagger returns over the past year, and even with the recent adjustments, they still show gains ranging between 100% and 300%.
SJVN, for instance, has dropped 30% to ₹119 per share from its 52-week high of ₹170.50. However, it remains up by 260% over the past year. Similarly, Angle One has also witnessed a 30% decline from its one-year high of ₹3,896 per share.
Shares of NBCC (India), a state-owned construction firm, are down 28% but still show a 257% increase. Likewise, NLC India’s stock has seen a 24% drop from its 52-week high.
Meanwhile, the government will sell up to a 7 percent stake in NLC India at a floor price of ₹212 apiece in a two-day offer for sale beginning Thursday.
The ₹2,000 crore OFS will open for institutional investors on Thursday and for retail investors on Monday. Friday is a market holiday on account of Maha Shivratri.
Also Read: Bubble alert: India’s small-cap stock rush needs risk reduction
Besides, other stocks such as Jyothy Labs, JBM Auto, Indian Overseas Bank, Cyient, Mangalore Refinery and Petrochemicals, Suzlon Energy, Global Health, UCO Bank, Central Bank of India, IRB Infrastructure Developers, and BLS International Services are currently trading down in the range of 15% to 23% from their one-year peaks.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
