2011 revisited | Small stocks take big beating

The downslide on Dalal Street did not spare big names in 2011, but small stocks lived up to their nomenclature with a much more sickening slump and investment in mid-cap companies also turned out to be messy affair.

As the year 2011 draws to an end, the market metrics suggest wide under-performance by mid-cap and small-cap stocks in comparison to their large-cap peers.

Market watchers call this a natural phenomenon and say that companies with relatively smaller sizes and less fundamental strength are bound to be hurt the most in times like 2011, when markets across the world were seen bleeding.

Data available with the stock exchanges shows that the mid-cap and small-cap indices have fallen by about 34% and 42%, respectively, since the beginning of 2011.

The blue-chip index, the Sensex, has managed a better performance despite a significant slump of about 23% during the same period.

In comparison, the performance of all the three segments was almost similar in the previous year 2010, when the mid-cap index and small cap index had gained about 16% each, while the Sensex fared little better by rising about 17%.

One of the major issues that cost mid-cap and small-cap stocks dearly was the burden of huge debts, as meeting these obligations became quite troublesome for them in times of economic uncertainty and a high interest rate regime.

Macroeconomic headwinds on the global and domestic front and concerns over policy reforms and currency fluctuation were some of the other factors that resulted in volatile and uncertain market conditions through 2011.

Analysts said investor interest in mid-cap and small-cap stocks continues to wane, as large-cap shares are preferred in these uncertain times.

In terms of valuation, the market capitalisation of the BSE-listed small cap companies has slumped by over Rs 1.7 lakh crore from more than Rs 4 lakh crore at the start of 2011.

Similarly, the valuation of mid-cap firms has fallen by close to Rs 3.8 lakh crore from about Rs 11.3 lakh crore.

The absolute losses for the 30 Sensex blue-chip companies are obviously much higher at about Rs 20 lakh crore, owing to their large sizes.

However, there was some parity among the large-cap, mid-cap and small-cap segments of the market, as the indices for all three classes fell to their lowest levels of the year on the same day, that is December 19.