August 27, 2016

Smallcap stocks losing traction?

A story I wrote in FC over a week back:

Last couple months saw smallcap stocks underperform largecaps

Small cap stocks, which were outperforming mid cap and large cap
stocks till a couple of months back, have started losing price
momentum, and have been underperforming in the last few weeks.

A Financial Chronicle Research Bureau analysis of the benchmark
indices revealed the benchmark small cap index, Nifty Free Float
Smallcap 100 to have fallen by 1.3 per cent, month to date, whereas
the Nifty Free Float Midcap 100 has gone up 1.4 per cent and the large
cap Nifty 100 index has stayed flat with a marginal 0.1 per cent

Going a little further, from the end of June till Wednesday, a similar
underperformance by the small cap index is detected. It has delivered
a 3.3 per cent return against the 8.4 per cent and 5.1 per cent
returns presented by the mid cap index and the large cap index.

After taking a severe beating in the first quarter of the current
calendar year, the small cap index had bounced back in the second
calendar quarter with vigour.

From the end of March to the end of June, the benchmark small cap
index supplied investors with a very high rate of return of 19.0 per
cent, as compared to the single-digit returns of 8.3 per cent and 7.5
per cent given by the benchmark mid cap and large cap indices

This had a ripple effect on the performance of mutual fund schemes
investing in small cap stocks. In a research note early this month,
Crisil Research said, "Small and mid-cap funds were the toast of
investors among equity mutual funds in the quarter ended June. The
category, as represented by Crisil-Amfi Small & Midcap Fund
Performance index, gained over 11 per cent for the quarter and was a
consistent performer over most periods analysed."

But the superlative performance of small cap stocks had come after  a
grilling first calendar quarter during which the small cap index dived
by 13.6 per cent. The mid cap index, in that period, went down by 4.8
per cent while the large cap index was down just 3.2 per cent.

The profit growth in financial year 2015-16 (FY16) was the sharpest in
the listed universe in small cap companies and the price surge in the
June quarter was primarily a reaction to that.

With valuations reaching their peaks, some analysts said a correction
was expected. The last few weeks' underperformance is, therefore,
reflecting the sobering down of expecations from small cap stocks.

Month to date, 61 companies in the Nifty Smallcap 100 index have given
negative returns, and 39 companies have managed to be in the positive
returns territory.

The worst month to date returns in small cap stocks of Nifty Smallcap
100 index were seen in Unitech (-25.2 per cent), Jaiprakash Power
Ventures (-18.3 per cent), Jaypee Infratech (-14.8 per cent),
Balrampur Chini Mills (-13.5 per cent) and Bajaj Hindusthan Sugar
(-13.1 per cent).

Bucking the trend and gaining the most in the smallcap index universe
were Delta Corp with a month to date return of 25.4 per cent, followed
by JK Tyre and Industries (20.0 per cent), Escorts (18.9 per cent) and
S H Kelkar & Company (18.1 per cent).