Small- and mid-cap index down 2% on bear hug

A large number of small- and mid-cap stocks came under bear hug on Tuesdya. Shares fell between 10 and 30 per cent in a trading session as margin financiers and short-sellers went on a rampage.

Among punter-favourite stocks, KS Oil was down 31 per cent), Den Network 20 per cent, IVRCL Ltd 18 per cent, SpiceJet 14.7 per cent, HDIL 11.7 per cent and Global Tele declined 10.6 per cent. This is the third time that small- and mid-cap stocks have fallen sharply in a single trading session, trapping retail investors.

Earlier, this had happened in December 2010, when small company counters had come under bear hug. Shree Ashtavinayak Cine Vision, SVC Resources, Money Matters Financials and Midfield Industries went on a crash course and fell 70-80 per cent in just a few trading sessions.

Other counters included Karuturi Global, Hanung Toys, Shiva Fertiliser, Parekh Aluminium, Syncom Healthcare, Valecha Engineering, Delta Corp, Parsvnath Developers, KS Oil, Videocon, Gokul Refoils, J Kumar Infra and GSS America. This was after the Securities and Exchange Board of India (Sebi) had issued a ban order against trader Sanjay Dangi and Central Bureau of Investigation raids on Money Matters Financials.

After that, in June this year, Global Tele Ltd (GTL), GTL Infra, S Kumars, KS Oil and Orchid Chemicals, among others, fell 20-70 per cent in just one or two trading sessions. Then, panic selling by financiers, who extend huge funds by accepting stocks as collateral, was the main reason for the crash in several stocks. Rumours were that foreign flow into the country would be affected as India was re-negotiating its tax avoidance treaty with Singapore.

Stock brokers say markets and investment of retail investors are often vulnerable to news that have nothing to do with the fundamentals of any company. The reason for the recent crash in some of the mid- and small-cap stocks was not based on fundamentals but completely out of the box for retailers.