The mid- and small-cap indices lost ground on Friday, as investors booked profit in stocks of these two segments following the Budget proposal to levy 10 per cent long-term capital gains tax (LTCG) on sale of equity investments. Analysts also attributed the fall, especially in these two market segments, to the sharp run-up seen over the past year.
In FY18, so far, the mid- and small-cap indices have outperformed the frontline benchmarks by rising 22.5 per cent and 29.7 per cent, respectively, as compared to the 21 per cent gain in the S&P BSE Sensex till Thursday. As many as 51 stocks from the small-cap index hit their respective 52-week lows on Friday. The list includes Allahabad Bank, Dena Bank, Jubilant Industries, Indo Count Industries, Punjab National Bank, Ugar Sugar, Jubilant Industries, and United Bank of India.
“There are two parts to the fall seen today in the market. The broad market is reacting negatively to the excessive focus on rural and social schemes and the return of the LTCG tax. There is stock-specific pressure due to unwinding of positions in high beta stocks. The market will take few days to absorb these proposals,” said Hemang Jani, head equity sales & advisory, Sharekhan. The fall has eroded investor wealth by about Rs 4.6 trillion in the equity market. The total market capitalisation of listed companies stood at Rs 148.5 trillion on Friday, against Rs 153.1 trillion on Thursday.
Thus far in 2018, the mid- and small-cap indices are down 7 per cent each, against a 3 per cent rise in the Sensex.
“The sell-off has been primarily on account of the sharp run-up seen in mid- and small-cap stocks over the last few months. 2018 may turn out to be a year of individual stock pickings. We foresee a lot of fast churning happening in the mid-cap space — that is, a large number of investors getting rid of over-valued or wrong stocks quickly at much lower prices and then riding on good quality stocks,” said G Chokkalingam, founder and MD Equinomics Research.
Also read: Budget 2018: Understanding the changes in the tax rules by Arun Jaitley