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BSE Smallcap index hits new high; analysts advise caution while investing

Asian Granito, BASF India, GIC Housing and Federal Bank are among the 18 stocks that hit a new high

Deepak Korgaonkar & Puneet Wadhwa  |  Mumbai / New Delhi 

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Shares of small-sized companies came back into action on Friday, with the S&P BSE index hitting fresh record high of 15,759 on Friday, after a strong rally in oil exploration, auto ancillary and information technology (IT) stocks. The index surpassed its previous high of 15,750 hit on May 11, 2017 in intra-day trade.

Aban Offshore, Hindustan Oil Exploration Company, Selan Exploration Technology and Deep Industries from oil exploration, Aptech, Aurionpro Solutions, NIIT Technologies, Rolta and Datamatics Global Services from IT were trading higher by 3% to 8% on BSE.

At 10:11 am; the S&P BSE index, the largest gainer among broader indices, was up 0.70% as compared to 0.65% rise in the S&P BSE Midcap index and 0.15% gain in the benchmark S&P BSE Sensex.

Around 18 stocks from the index include Asian Granito India, BASF India, Can Fin Homes, Century Plyboards, Federal Bank, GIC Housing Finance, Dewan Housing Finance and Motilal Oswal Financial Services hit their respective new highs today.

Given the sharp rally, analysts now remain cautious on this space and prefer the large-cap segment. Any negative news, they say, can trigger a sharp fall in the market and the small-cap segment, in such a scenario they say, will be hit badly.

"The valuations now appear stretched for the small-caps given the sharp rally. Any negative can trigger a sharp correction. In such a scenario, investors should book partial profit in this segment and look for quality large-caps where earnings growth is visible," says Tirthankar Patnaik, India Strategist at Japan-based Mizuho Bank.

Another reason for remaining cautious on the overall markets, analysts say, is that the rally has been purely on the basis of gush of liquidity, which they will should not be the sole criterion for investors to add to their positions. 

"Flows are not sufficient reason to add risk at evevated valuations. Very few stocks are cheap on absolute; relative investors should look at market relative investment opportunities. Stay cautious in the near term," suggest Sanjay Mookim and Nafeesa Gupta of Bank of America Merrill Lynch (BofA-ML) in a recent report.

The run-up has also made analysts at UBS cautious on this segment. They feel that the small-and mid-caps, as an asset class have ahad a sharp run up following demonetisation and the valuation gap versus the large-caps is still high. They are of the view that growth recovery wil be gradual and will disappoint the Street.

"Indian small-and mid-caps as an asset class may not be that exciting after their sharp run-up, especially in the near term; we continue to advocate a bottom-up approach. We look for companies with strong business models and quality management, coupled with strong growth potential," write Gautam Chhaochharia, head of India Research at UBS Securities and Shaleen Kumar, an analyst at UBS Securities in a recent note.
B.L.KASHYAP 34.10 30.40 12.17
ABAN OFFSHORE 187.35 173.95 7.70
PROZONE INTU 44.80 41.65 7.56
INDIAN HUME PIPE 488.25 455.95 7.08
MPS 611.00 571.05 7.00
APTECH 222.00 209.50 5.97
MCNALLY BHARAT 49.45 46.70 5.89
UDAIPUR CEMENT 32.90 31.20 5.45
THE HI-TECH GEAR 372.30 353.25 5.39
JBF INDS. 307.85 293.05 5.05
SHILPI CABLE 23.20 22.10 4.98
NITIN FIRE PROT. 10.78 10.27 4.97
NAGARJUNA FERT. 15.95 15.20 4.93
GLOBAL OFFSHORE 37.25 35.50 4.93
HCL INFOSYSTEMS 47.00 44.80 4.91
SRS 3.70 3.53 4.82
DFM FOODS 1260.00 1202.15 4.81
JAI CORP 81.70 78.00 4.74
HIND.OIL EXPLOR. 74.60 71.25 4.70
DREDGING CORPN. 713.85 682.10 4.65