Feature

Cherry-picking Fallen Angels — Part 1

Mid-cap stocks have corrected much more than the broad market. Where should you bottom-fish?

Shutterstock

Following an unrelenting rise over the past 18 months, the winning streak for small and mid-cap stocks has come to an end. Since the beginning of this calendar year, BSE Small-Cap Index and Mid-Cap Index have fallen by 20% and 15% from their respective highs. May was the worst month for mid-caps in the past one-and-half years with the index plunging by 6.8%. A cloud of uncertainty now looms over these indices with several coveted names no longer being investor favourites.  

Till December last year, mid-caps and small-caps had a great run due to the good macro-environment and fund flows. Over the past six months, micro-environment has improved but macro has become challenging. A weakening macro-environment triggered by increasing crude prices and depreciating rupee has fuelled market volatility forcing investors to take shelter in large-cap stocks. “When liquidity tightens, interest rates start rising and inflation returns. In an increasing interest rate scenario, the equity valuation in terms of multiple takes a beating and it’s usually the mid-cap universe that suffers more than large-caps,” says Pankaj Tibrewal, equity portfolio manager, Kotak Mahindra AMC. In the mid-cap space alone, 55 stocks plummeted between 10%-30% and another 24 fell by 30% or higher. 

That fall was not only due to the change in market sentiment. Re-categorisation of mutual fund norms has also contributed to the fall. Fund managers had to re-arrange their portfolio after Sebi-issued new guidelines for categorisation of mutual fund schemes. The mid-cap segment now includes the 101st to 250th stock ranked by market capitalisation. The 100th stock by market capit

unsub

You don’t want to be left behind. Do you?

Our work is exclusively for discerning readers. To read our edgy stories and access our archives, you’ve to subscribe