It may be a flat and uneventful session for Nifty and the Sensex but the pain in broader markets continue. The BSE Small Cap Index is down nearly 4% intra-day today after the sharp 10% correction in 1 week. In January so far, the BSE Smallcap Index is down over 15%.
Here are some key reasons why the small cap stocks are under pressure- Earnings pain
The bulk of earnings in the small and midcap space have been far from encouraging. Most numbers indicate that the pain will continue going forward. As a result, the market has been punishing the weak stocks and there is significant sell-off. Companies with poor Q3 results have seen significant sell-off , down nearly 20%and more from recent peaks in many cases.
Market sentiment muted
The overall market sentiment has been significantly muted. Investors are maintaining a cautious approach, given the global and the local cues. As a result of this stocks with bad news like weak earnings have been punished severely by the market.
Also Read3 things you need to know about BHEL shares ahead of Q3 earnings Valuation concerns
Despite the recent correction, most analysts believe that the valuation in the small cap universe is still significantly stretched. Even after the significant correction in last December and January so far, the BSE Smallcap index is up nearly 5% on a 1-year basis. It has delivered 61% returns on a 2-year timeframe.
FII outflows
The continued outflows by foreign institutional investors continue to be another fundamental worry for the investors. The smallcap universe is seeing a domino effect of the overall impact of the FII selling. FIIs have sold nearly 70,000 crore worth equities in January alone. The selling in the last 4 months scales past the Rs 2 lakh crore mark.
» Read More
