Mid, Small Caps Fall Nearly 10% So Far This Year. Should You Invest?

Domestic equity benchmarks recently registered their worst correction recorded in past many years. While the S&P BSE Sensex logged its longest losing streak in eight-and-a-half years, the NSE Nifty 50 Index posted its worst run in more than four years. However, the broader market indicators such as BSE 500, S&P BSE Midcap and S&P BSE Smallcap indexes have underperformed the Sensex and Nifty by a big margin. The underperformance in broader markets come in the backdrop of concerns about a liquidity crunch - which emerged after IL&FS defaulted on its debt obligations and subdued corporate earnings, say analysts..The S&P BSE Midcap index has dropped 9.36 per cent so far this year, sharply higher than a 0.86 per cent decline in the Sensex. Also, the S&P BSE Smallcap index has plunged 9.75 per cent while the broader BSE 500 Index has tumbled 3.58 per cent since the start of this calendar year..Investors' wealth in mid- and small-cap shares has been eroded massively..Reliance Power, the top loser in the mid-cap space during this period, has fallen 62.47 per cent year-to-date (till Wednesday's closing price), data from the BSE shows. Reliance Infrastructure, Dewan Housing Finance, Reliance Capital and IDBI Bank have also plunged between 62 per cent and 28 per cent each making them the worst performers in the S&P BSE Midcap Index..The gravity of fall is such that only 17 stocks have given positive returns out of 104 shares in the mid-cap index, according to the BSE data..The situation in small-caps is even worse with nearly 90 per cent of the shares in the index having given negative returns as of the closing prices on Wednesday..From the small-cap universe, Siti Networks has been the worst performer so far this year - having plunged a whopping 71 per cent. LEEL Electricals, Punj Lloyd, The Byke Hospitality and Reliance Communications have also plunged between 66 and 60 per cent, the data shows..The small-cap index fell over 30 per cent in 2018 and on top of that it has fallen 10 per cent so far this year. Small-cap space is becoming attractive but the problem is growth is not catching up and companies are facing pressure on the operating profit or EBITDA margin front. Another 10-15 per cent correction on the index will make the small-cap stocks even more attractive, said AK Prabhakar, head of research at IDBI Capital Market.."From a three years view, many stocks are looking attractive and we are asking investors to nibble in these stocks so that they get a better entry. We are asking clients to look at buying as many stocks have become attractive but being attractive does not give you returns. Investors have to be slow in buying and buy shares in a systematic manner," added Mr Prabhakar..Market expert Ajay Bagga and executive chairman at OPC Asset Solutions suggests cautious approach in entering the mid- and small-cap space and says that around June would be the right time to park money in these shares.."Buying from institutions and high net worth individuals (HNIs) has started in the mid- and small-cap space as some stocks are rallying a bit from the bottom indicating that interest is returning. But I will be cautious in buying these shares because of uncertainty over elections and secondly earnings recovery has not taken place as well we had thought," Mr Bagga said.

Mid, Small Caps Fall Nearly 10% So Far This Year. Should You Invest?

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