Midcap, smallcap stocks rebound

They had fallen 15-35% in December after an Intelligence Bureau report on price manipulation.

Many midcap and smallcap stocks, which saw severe drubbing last month following an alleged Intelligence Bureau (IB) report mentioning names of stock market operators for a possible crackdown by the regulator, have recouped a majority of their losses on value buying.

Fears about the IB report gripped the stock market in the first week of December. Separately, the Securities and Exchange Board of India (Sebi)’s order against market operator, Sanjay Dangi, on December 2 also hurt the sentiment.

Media reports also suggested the home ministry had ordered an investigation into the alleged leak of the IB report, which led to fall in share prices of many midcap and smallcap stocks. According to these reports, the probe will look for the people behind the alleged leak and find whether any vested group was trying to manipulate the market through the purported report.

Between December 2 and December 9, the Bombay Stock Exchange (BSE) midcap index lost about 10 per cent and the smallcap index dropped nearly 14 per cent. During the same period, the exchange’s benchmark, the Sensex, lost only 3.75 per cent.

However, since December 10, the BSE midcap and BSE smallcap indices have gained about five per cent and nine per cent, respectively. The Sensex gained four per cent during that time.

“The correction in many midcap and smallcap stocks was a knee-jerk reaction following an alleged IB report and fears of Sebi action against some market operators,” said Mayank Shah, chief executive officer of Anagram Stock Broking. “These stocks have now recovered on value buying.”

For example, shares of companies like Ruchi Soya, KS Oil, IRB Infrastructure, Pipavav Shipyard, Parsvanath Developers and S Kumars Nationwide, which lost 15-35 per cent between December 2 and December 9, have gained 10-27 per cent since then.

“When you paint everything with the same brush, it’s not correct,” said Manish Sonthalia, vice president and fund manager at Motilal Oswal Asset Management Company. “The stocks not directly implicated by scams have found buyers at lower levels.”

In contrast, stocks whose names directly figured in the scams, such as Money Matters Financial, Ackruti City, Murli Industries and Welspun Corp, are still languishing.