Equity markets have faced several headwinds this year with the emergence of geopolitical tensions, inflation concerns and unbridled selling by foreign funds.
Experts said there is panic in the capital markets both domestically and globally, driven mainly by these challenges.
The BSE Smallcap index has lost 3,816.95 points or 12.95 per cent so far this year and the Midcap index has lost 2,314.51 points or 9.26 per cent. In comparison, the 30-share BSE Sensex It declined 3,771.98 points, or 6.47 per cent, this year.
“Mid and smallcap indices also moved much higher than the Sensex during good times, so it is natural that they would fall more than the Sensex in bad times. The rise and fall in mid and smallcaps are more pronounced than theirs. Largecaps Equivalent,” said Rahul Shah, Co-Head of Research, Equitymaster.
He further added that as far as the current trend is concerned, while the markets are no longer expensive, they are not cheap either.
“This is a market where quality and growth will be rewarded and costly valuations and poor quality will be rejected,” Shah said.
On June 20 this year, the BSE’s smallcap gauge had hit its 52-week low of 23,261.39. It had reached its one-year peak of 31,304.44 on January 18.
The midcap index had fallen to its 52-week low of 20,814.22 on June 20. It had climbed to its one-year high of 27,246.34 on October 19 last year.
The Sensex had hit a 52-week low of 50,921.22 on June 17 this year. The benchmark hit its one-year high of 62,245.43 on October 19, 2021.
“There has been a slight panic in capital markets both in global and domestic markets in the last six months and clearly this panic is driven by challenges on the economic front, geopolitical tensions, high inflationary environment, high interest rates, intense foreign institutional challenges . Investor Sales.
“So, it appears that midcaps and smallcaps have underperformed, but we also need to note that midcaps and smallcaps have outperformed midcaps and smallcaps in the last two years,” said Sachin Shah, fund manager, Emkay Investment Managers. Limited.
Smaller stocks posted a stellar performance in 2021, delivering 63 per cent returns amid a dream run in the equity market.
In 2021, the midcap index rose 7,028.65 points or 39.17 per cent, while the smallcap index rose 11,359.65 points or 62.76 per cent. In comparison, the Sensex had jumped 10,502.49 points or 21.99 per cent last year.
The Sensex had gained 15.7 per cent in the year 2020. Small and midcap stocks had gained up to 24.30 per cent in 2020.
According to market analysts, short stocks are usually bought by local investors, while foreign investors focus on blue-chips.
“We are in a correction phase from October 2021 or we can say a short term bear phase and generally, midcap and smallcap take bigger moves on both sides as compared to frontline stocks.
“Inflation is a key trigger for a market correction and we know that large companies are better positioned to pass on higher input costs, while midcap and smallcap companies take a hit on their margins which can affect their poor performance. There is another reason for performance,” said Nyati, Managing Director, Sunil Swastika Investmart Ltd.
Nyati said the Indian market remained resilient despite a lot of headwinds and record selling by FIIs (Foreign Institutional Investors) on the back of the domestic currency.
“Going forward, all eyes will be on the quarterly results as they will be the real indicator of the health of India Inc. If the quarterly results come in better than expected then we may see some bounce otherwise the markets may remain confined. Select pockets doing well while others may feel the pressure,” said Rahul Shah.
According to Nyati, it seems to be the laggard in terms of inflation, so we can expect a rally in the Indian equity market from here.
“If FIIs come back to the market, we can expect largecap stocks to outperform in the short term, however, in the long term, midcap and smallcap stocks outperform as we are in a long term bull market,” he added. PTI Yoga Shree