Business

BSE Small-cap index hits seven-year high; up over 10% in six days

Even as the benchmark indices have recovered lost ground since the past few weeks, stocks of small-sized companies have outperformed, with the S&P BSE Small-cap index hitting seven –year high during intra-day trade on Wednesday.

S&P small-cap index rallied to 11,610 levels (around 1.5%) in intra-day deals – its highest level since January 2008. In comparison, the S&P BSE Sensex and S&P BSE Mid-cap index moved up less than 1%.

In past six trading sessions, S&P small-cap index has surged 11.3%, outperforming the S&P BSE Sensex (up 4%) and S&P BSE Mid-cap index (up 6%). The CNX Small-cap index, too, gained nearly 11% during the period.

Analysts co-relate the performance of the stocks in this segment to the way mid-caps performed last year. People have started investing in this segment as they are now willing to take more risk, they say. Moreover, a lot of stocks in the large-cap and the mid-cap are fairly priced, which leaves stocks in the small-cap segment where investors are seeing opportunity.

“Another reason for the small-caps garnering attention is the increased liquidity in the system. Investors who made money in the large-cap and the mid-cap segments are now reinvesting money in the small-cap segment in a hope that they’ll make good return going forward. On a fundamental basis, select companies are attracting fresh money from PE (private equity) investors, especially after the restructuring exercise. With an improvement in the economy, their fortunes will also change for the better as the balance sheet stress reduces, which was the main reason for their fall earlier,” said Deven Choksey, managing director & chief executive, K R Choksey Securities.

OUTPERFORMANCE

Of the 480 actively traded stocks from the S&P BSE Small-cap index, 160 stocks have outperformed the market by appreciating more than 13%; around 52 stocks gained between 10% – 13% and 136 scrips gained between 5% – 10% in the past six trading sessions.

The foreign institutional investors (FIIs), meanwhile, have invested Rs 1,406 crore in the Indian markets, while domestic institutional investors (DIIs) invested net amount of Rs 637 crore between March 30 and April 7, as per provisional data from the stock exchanges.

Among individual stocks, Kitex Garments, Panacea Biotech, Ess Dee Aluminium and Aurionpro Solutions have rallied over 40%. Gulf Oil Corporation, R S Software, Amtek India, Sudarshan Chemical Industries and Sarda Energy are among few that surged between 30% – 40% on the BSE.

Rally in some of these stocks has also been driven by expectations of a healthy financial performance in the March 2015 quarter.

Marico Kaya Enterprises, for instance, touched a record high of Rs 2,144 on Wednesday and has gained 45% in past six trading sessions. The company posted a consolidated net profit of Rs 25.3 crore in first nine months of FY15 against a loss of Rs 5.5 crore.

Outlook

Despite the rally and the expectation of an improvement in financial performance, one needs to be very selective in this segment, advises Choksey. He likes like and holds select media companies in the mid-cap and the small-cap segment in his portfolio, besides select Gujarat – based fertiliser companies.

Jagannadham Thunuguntla, head of fundamental research at Karvy suggests that investors should consider quality of the company, balance sheet strength and check promoter pledging before investing in the small – caps.

Rikesh Parikh, vice-president for market strategy at Motilal Oswal Financial Services says that the S&P BSE Small-cap index has recovered fully from the fall seen last month and could trend higher for the next few weeks. The index typically does well in the month of April, historical evidence suggests, he says. However, he advises fresh investment should be made selectively given the run – up and the upcoming results season.