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One month of lockdown: Small-caps outperform Sensex, mid-caps

By Deepak Korgaonkar & Puneet Wadhwa
April 24, 2020 13:49 IST
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The S&P BSE Small-cap index has recovered 26 per cent as compared to a 23 per cent rise in the S&P BSE Sensex.

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Illustration: Dominic Xavier/Rediff.com

Small-caps have outrun their mid- and large-cap peers in the month (since March 25) that the country has been under lockdown, triggered by the coronavirus disease (Covid-19) pandemic.

The S&P BSE SmallCap index recovered 25.1 per cent, compared with a 24.3 per cent rise in the S&P BSE Sensex, and 22.1 per cent gain in the S&P BSE MidCap index from their respective 52-week lows seen on March 24.

 

The run-up has been on account of a rally in stocks of pharmaceutical, fertiliser, chemicals and auto ancillary stocks.

The pharmaceutical sector tops the gainers list, with 18 stocks moving up over 50 per cent.

It is followed by chemicals sector with 15 stocks, capital goods (12), information technology (8), fast-moving consumer goods companies (6), and auto ancillary and fertilisers (4 each).

“A number of investors who lost money in the fall from the January peak levels started buying to make a quick buck and recover losses when the markets started to move up in March.

The mid- and small-cap segments, thus, got investors’ attention,” says G Chokkalingam, founder and managing director at Equinomics Research.

In March, the Indian equity market recorded its second sharpest monthly fall since October 2008, amid massive sell-off by investors who feared that the pandemic would cause heavy damage to the economy.

The small- and mid-cap indices of the BSE plunged 30 per cent and 28 per cent, respectively, last month, underperforming the benchmark which down 23 per cent.

“Mid-and-small-cap stocks have seen a significant impact in this correction and the fall is giving a good opportunity to add good quality names stocks in our schemes.

"The sharp correction has provided an opportunity to rebalance our portfolio,” said Mahesh Patil, chief investment officer - equity, at Aditya Birla Sun Life AMC.

Meanwhile, foreign portfolio investors pulled out Rs 61,973 crore (approximately $8.35 billion) from Indian equities in March.

It was the biggest monthly outflow, based on the National Securities Depository data available since as far back as 2002.

Out of 691 stocks from the S&P BSE SmallCap index, 365 stocks outperformed the index by gaining over 26 per cent.

Of these, nearly 125 stocks rallied over 50 per cent from their respective March 23 levels.

Most of these stocks had seen their price nearly halve when the markets tumbled on the back of COVID-19 crisis.

Despite the recovery from March lows, most analysts remain cautious on the road ahead - at least till they see the rise in COVID-19 cases in India and the world coming under control - and suggest the rise could just be a temporary relief within a larger bear market.

“We view the current rally as a bear market rally, which are common in history.

"For markets to make a lasting bottom, we have been monitoring a set of conditions that include flattening infection curves, visibility on the depth and duration of economic disruptions, sufficiently large policy stimulus and deep undervaluation of assets and position reduction,” wrote Sunil Koul, executive director for Asia Pacific Portfolio Strategy and Global Macro Research at Goldman Sachs, in a recent report.

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Deepak Korgaonkar & Puneet Wadhwa in Mumbai/New Delhi
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