Small-caps back in action

Small-cap stocks are back in action on the bourses, with the Bombay Stock Exchange small-cap index more than doubling from its multi-year low of 2,866.68 on March 9.

The index has ranked fifth in the gainers’ list among 16 indices compiled by the BSE, up 102 per cent since its multi-year low on March 9. And it has been the second-biggest gainer, post election results, up 35 per cent over May 15.

The small-cap stocks trading under sectors such as information technology, engineering, construction, trading, steel, capital goods, fertilisers, tea, broking houses, banking and shipping have appreciated more than 100 per cent each over their March 9 levels. However, stocks traded under airlines, chemicals, hospitals, personal care products, automobiles and auto ancillary sectors have underperformed the index, up 19-36 per cent each.

Around 49 per cent of the 466 small-cap index component stocks have outperformed their index, while almost 83 per cent of these stocks have gained by over 50 per cent each. Only 13 stocks have posted negative returns since March 9. Small-cap stocks are trading at a price to earnings multiple of 12.59 times, compared to mid-cap stocks trading at a P/E of 15.36 and blue-chip stocks trading at a P/E of 15.6 times.

Thirteen stocks from the small-cap index are close to a one-year high on the BSE, including Fem Care Pharma, Alkali Metals, Unichem Lab, Astra Micro and Garden Silk. The average investor’s wealth in small-cap stocks has appreciated by 34 per cent in the past six trading days, as compared to a 15 per cent average value appreciation in Sensex stocks and 27 per cent each in mid-cap and other stocks.

The small-cap index was traded at a P/E of 23.03 at the time the index was at its peak on January 8, 2008. The P/E of the small-cap index has almost doubled since March 9, 2009, as compared to the Sensex and mid-cap index. The Sensex, trading at a low P/E of 13.5 on March 9, is currently trading at a P/E of 15.6 on the BSE.

As noted earlier, the price appreciation in small-cap stocks has been very high after May 15, with a gain of more than 80 per cent each by United Breweries Holdings, IVR-Prime Urban, Action Constructions, Everonn Systems, Swan Mills, Indiabulls Securities and NIIT.