Over two-thirds of BSE500 stocks decline in August, shows data

Experts say this reflects selling pressure in mid-, small-cap space

Though the benchmark indices are hovering near all-time highs, over two-thirds, or 354, of the BSE500 stocks have posted negative returns in August on a month-to-date (MTD) basis. Of these, 108 stocks have corrected between 10 per cent and 31 per cent so far this month.
 
On MTD basis, the BSE MidCap index has fallen 0.6 per cent, and the SmallCap index has declined 3.1 per cent, while the Sensex has risen 6.3 per cent. This is a reversal of the situation since the March 2020 lows, when the BSE MidCap index had gained 140 per cent, while the SmallCap index rose 201 per cent.
 
Experts said the fall reflects the selling pressure in the mid- and small-cap space. Some have advised investors to exercise caution, while others called it a short-term corrective trend on account of the sharp run-up in mid- and small-cap stocks.
 
“Typically, small- and mid-cap stocks start to move up after a sizeable rally has happened in the benchmark indices. March and June quarters were very good for the mid- and small-cap indices. July was a flat month for the Nifty, and in August, we see some late rally in the Nifty. The mid and small-cap indices are undergoing a correction after a flat July for Nifty. The holding capacity of retail and HNI (high networth individual) investors is limited as compared to the institutional investors, who are largely invested in the Nifty stocks,” said Deepak Jasani, head of retail research, HDFC Securities.
 
Some analysts said the correction is steeper in mid- and small-cap stoc­ks, which have become multi-bagge­rs with weak fundamentals. And said the aggressive positions taken by new investors is the reason for the sharp rally in the broader markets.

“A lot of loss-making stocks that were enjoying a high valuation corrected. This correction was overdue. The new investors are the reason why mid- and small-caps rallied sharply. Even this month, at least 100,000 investors are entering the market daily. The number of investors has more than doubled in the last two years. New investors prefer mid- and small-caps because large-caps usually do not give double-digit returns in a matter of days. Even if such a rise happens, institutional buyers will exit their positions. Institutional players are not present in the mid- and small-cap space. It’s more perception driven,” said G Chokkalingam, founder of Equinomics.
 
Siddhartha Khemka, head of research (retail), Motilal Oswal Financial Services, termed the correction in the broader markets a sign of cautiousness kicking in after talks of the US Federal Reserve tapering bond purchase.
 
"The excess liquidity created a high-risk appetite, and now with gains in hand and cautiousness coming in, there is some profit booking. And consolidation is likely to happen for some time."
 
Experts further said that retail investors should be clear on whether they are taking short-term positions based on the sentiment or investing for the long term.
 
"If they are playing on sentiment, they should strictly stop losses. And if they want to invest for the long term, they should cherry pick stocks with strong fundamentals. Even if stocks with strong fundamentals fall, they have a chance of gaining once the market stabilises," said Khemka.
 
Experts said mid-and small-caps might revive in the future. However, it will be a recovery led by fundamentals rather than blind buying. And action will most likely to shift to quality names across segments.
 
“It will revive with some value buying. But investors are punishing overprice stocks. It will be a different recovery. It won’t be uniform across segments,” said Chokkalingam.