India Strategy : Where Money Flows – September 24 by Yes Securities Ltd
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No Market Froth: Small/Micro Cap stocks correct even as Nifty hits Record Highs
We conducted an analysis of how broader indices are performing while the Nifty is reaching all-time highs. We wanted to see if there was excessive speculation or irrational exuberance in smaller or micro-cap stocks. Surprisingly, even though the small-cap and mid-cap indices are near their all-time highs, several stocks in the smaller market cap segments have seen significant corrections. In fact, 41% of the stocks in the Small Cap 250 index and 56% of the small and micro-cap stocks have dropped more than 20% from their 52-week peak, and around 19% of micro-cap stocks have fallen more than 50%. This decline could be due to factors such as reduced liquidity from restricting MTF position, valuation adjustments, or slowing earnings momentum. The key takeaway is that there's no clear sign of market froth, despite Nifty hitting new highs.
We also analyzed sector performance across different market-cap categories for additional insights. Our findings are as follows:
* In the large-cap segment, sectors like Chemicals, Consumer Durables, Telecom, and FMCG are trading near their 52-week highs, while rallies in Capital Goods and Realty stocks have lost momentum, with these stocks far from their peaks.
* In the mid-cap segment, Healthcare has maintained its strong performance, followed by FMCG, whereas Media and Metals & Mining stocks have faced steep declines.
* In the small-cap segment, sectors such as Metals & Mining, Realty, and Telecommunication have experienced notable corrections.
* Defensive sectors like FMCG and Healthcare have shown consistent positive trends across various market-cap categories.
* Overall, the recent market trends suggest no significant shift, with large-cap and mid-cap stocks continuing to perform well, while small-cap and micro-cap stocks remain underperforming compared to benchmark indices.
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