The Nifty Smallcap 100 rebounded sharply after plummeting 13 per cent in March.
The index has rallied 11 per cent following gains in nine consecutive trading sessions as investors rushed to buy the dip.
The index last closed at 16,153 — highest since March 4 — after recouping all the losses made after the Securities and Exchange Board of India (Sebi) sounded caution around the build-up of froth.
Last month, Sebi chairperson Madhabi Puri Buch raised concerns on stretched valuations in small and midcap stocks, which retail investors generally favour. Buch emphasised on not allowing the froth to build, as it can adversely impact investors when the bubble bursts.
The Association of Mutual Funds in India (Amfi) also directed fund houses to provide investors with additional disclosures on the risk of small and midcap funds.
The smallcap index plunged 9 per cent after the Sebi chief raised concerns.
Elevated valuations in the small and midcap segments had been a concern for a while, but the regulator’s message and action intensified the selling pressure.
Sebi chief’s comments came in the week when mutual funds were supposed to submit stress-test reports on mid and smallcap schemes.
Raids against Dubai-based trader Hari Shankar Tibrewala led to a selloff in the smallcap stocks where he has exposure.
From its March lows, the smallcap segment has gained 13 per cent. The top gainers include Angel One, up 28 per cent, National Aluminum Company (up 27.5 per cent) and Cochin Shipyard (up 22 per cent).
After the latest rebound, the Smallcap 100 is down just 2.5 per cent below its all-time high in February 2024.
“Despite the noise regarding valuation concerns and foul play in the segment, quarterly results are expected to be unaffected. Smallcap is where retail investors are invested, and it gains largely on recommendations from their brokers and peers.
Moreover, in some stocks, there are enough positive news flows, such as those bagging big orders. This is keeping investors optimistic about the potential of smallcaps,” said UR Bhat, co-founder of Alphaniti Fintech.
Some analysts said the gains in smallcaps are due to bargain hunting.
“Many quality stocks in the segment corrected 15-20 per cent, and many investors found it attractive to re-enter. And even after the meltdown, thousands of new investors are entering the market every week,” said Chokkalingam G, Founder of Equinomics.
Chokkalingam added that the general bullishness in the markets has also helped in this bounce-back.
“We have many institutions upgrading their economic growth forecasts and better macro data, including the banking credit growth. It is difficult to expect any corrections for some time. One has to see whether the fundamentals justify the momentum. If it doesn’t, we can see a bout of correction some time,” said Chokkalingam.
First Published: Apr 03 2024 | 10:19 PM IST
