Smallcaps slide on fears of tighter Sebi norms; BCL, Sigachi sink up to 17%

The S&P BSE Smallcap index was down 1 per cent in intra-day deals on Monday as against a 0.3 per cent dip on the S&P BSE benchmark, the Sensex.

Shares of smallcap companies were under pressure and declined up to 17 per cent on the BSE in Monday's intra-day trade amid heavy volumes on concerns of further follow-up actions from the market regulator to prevent a bubble formation in the broader market and its inevitable burst.

At 10:32 am; the S&P BSE Smallcap index, slipped nearly 1 per cent or 413.58 points to 44,240.29. In comparison, the S&P BSE Sensex was down 0.28 per cent, while the S&P BSE Midcap index up 0.4 per cent.

With today's decline, the Smallcap index has tanked 5.5 per cent from its record high level of 46,821 touched on February 7, 2024. Thus far in the month of March, the index fell 2.2 per cent or 985 points.

Among individual stocks, BCL Industries tanked 17 per cent to Rs 58.48 on the BSE in intra-day trade. Sigachi Industries and Balu Forge Industries plunged 14 per cent to Rs 60.80 and Rs 180, respectively. JTL Industries, JM Financial, Arvind, SMS Pharma, Ramky Infrastructure, Neuland Laboratories, HBL Power Systems, JK Tyre and PCBL were down in the range of 6 per cent to 10 per cent.

The Securities and Exchange Board of India (Sebi) wants mutual funds (MFs) to put in place an investor protection framework for those investing in smallcap and midcap funds amid a build-up of “froth” in this space.

Following directions from the markets regulator in this regard last month, the industry body Association of Mutual Funds in India (Amfi) had sent a letter to MF trustees, asking them to ensure “appropriate and proactive measures”, the Business Standard had reported. CLICK HERE FOR FULL REPORT

Meanwhile, the Reserve Bank of India (RBI) has barred IIFL Finance from giving any further gold loans with effect from Mar 4, 2024 based on certain observations made by the regulator over the loan-to-value or LTV offered, cash payment made by the company, etc.

The RBI also barred JM Financial Products from providing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering.

Capital markets regulator Sebi on Thursday barred JM Financial from taking new mandate for acting as a lead manager for any public issue of debt securities, for indulging in unfair trade practices.

According to Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, the dominant trend in the market in the near-term is likely to be the underperformance of the broader market, particularly the small cap space. Since restraint imposed by some mutual funds by stopping lump sum investment into their small cap schemes has failed to stem the flow of funds into the overvalued small -cap segment, SEBI has stepped in with regulatory action asking the mutual funds to do stress tests in their mid and small cap schemes.

More follow up actions are likely from the regulator to prevent a bubble formation in the broader market and its inevitable burst. Since the market is scaling new highs consistently, the undertone of the market remains bullish and, therefore, investors should remain invested. Large caps are likely to witness buying on dips while the broader market will face headwinds, Dr. V K Vijayakumar said.