A sharp fall in small-cap segment has seen the number of stocks trading below their face value rise to 314 at the bourses from 132 a year ago and 269 at the beginning of calendar year 2019 (CY19).
Reliance Naval and Engineering, IL&FS Transportation Networks, Essar Shipping, Punj Lloyd and Shriram EPC are among the 51 stocks that have slipped below their face value in past one-and-a-half months alone.
Thus far in CY19, the S&P BSE Small-cap and the S&P BSE Mid-cap indices have underperformed the market by falling 11 per cent each, as compared to 1.6 per cent decline in the benchmark S&P BSE Sensex till Monday.
“A lot of mid-and small-cap stocks that had governance issues went up in the recent bull-run. However, they were battered badly once these issues came to the fore. Going ahead, stocks that still hold promise in terms of clean management, no governance issue and good business prospects will bounce back,” says G Chokkalingam, founder and managing director at Equinomics Research.
Shares of the two IL&FS group companies - IL&FS Engineering and Construction (Rs 8.10) and IL&FS Transportation Networks (Rs 5.20) – slipped below their face value of Rs 10 each, hitting new lows on the BSE last week. Both these counters have lost up to 90 per cent in past one year.
Anil Dhirubhai Ambani Group (ADAG) company, Reliance Naval and Engineering, has plunged 80 per cent since February 2018 to Rs 8.99, as net loss for the nine months ended December 2018 (9MFY19) widened to Rs 1,082 crore from Rs 547 crore in the previous corresponding period.
Reliance Communication (RCom), too, hit a new low of Rs 4.85 and slipped below its face value of Rs 5 per share on February 6, 2019. A deal with the lenders saw most ADAG Group stocks, including RCom, recover some lost ground.
“The markets have over-punished Reliance Nippon Life Insurance, Reliance Infrastructure and Reliance Capital. Among the ADAG group stocks, these three should stage a recovery going ahead,” Chokkalingam adds.
Meanwhile, the number of actively traded stocks on the Bombay Stock Exchange (BSE), too, has declined due to sharp correction in mid-and small-caps. On an average, actively traded stocks during the February stood at 2,761 – their lowest level since April 2016. There were 3,112 stocks when the market was at peak during January 2018.
Analysts partly attribute this to the uncertainty around the upcoming general elections and other domestic and global factors that has kept investors away from investing these two market segments. They, however, suggest the fall in the mid-and small-caps presents a good opportunity for those who want to invest from a medium-to-long term perspective.
Jyotivardhan Jaipuria, founder and managing director, Valentis Advisors, expects the mid- and small-caps to outperform the large-cap peers in CY19. "The early part of the year may continue to see weakness in mid-caps that provides better buying opportunities,” he says.
Among individual stocks, Muthoot Finance, Honeywell Automation, Voltas, Bayer CropScience, Future Lifestyle Fashions, NIIT Tech, NCC, Timken, CCL Products and Deepak Nitrite are the top mid-cap picks of Dhirendra Tiwari, an analyst at Antique Stock Broking.
On the other hand, LIC Housing Finance, Indraprastha Gas, Endurance Technologies, Oberoi Realty, Indian Hotels, Federal Bank, JSPL, Crompton Greaves Consumer Electronics, DCB Bank and Persistent Systems are the mid-cap counters that Motilal Oswal Research is bullish on.
|Price on BSE in Rs|
|List of stocks from the S&P BSE Smallcap index|