Thursday marked the fourth straight day of steep losses for the BSE smallcap index, thanks to global weakness and rich valuations. At today's intraday low of 35,278.78, the 954-pack index was down 8.3 per cent over its October 19's closing value of 38,490.14, making investors wonder whether more downside is on the cards. Data compiled from corporate database Ace Equity suggested over 900 of the index stocks are in the red; at least 176 shares entered a correction phase, falling over 10 per cent during the four-day period.
Shares of smallcap Jai Corp Ltd hit a low of Rs 275.90 today. It has plunged 25 per cent in four sessions. MMTC Ltd tanked 23 per cent, KIOCL Ltd dived 22 per cent while Jubilant Pharmova Ltd tumbled 21.4 per cent. NMDC Steel Ltd, Kirloskar Brothers Ltd, SEPC Ltd, Aarti Drugs Ltd, Onward Technologies Ltd, GFL Ltd, Indian Hume Pipe Company Ltd, Sasken Technologies Ltd and BEML Ltd are among stocks that have fallen up to 21 per cent in the four-day fall.
Stocks that saw at least 10 per cent fall included BEML Ltd (down 19 per cent), Alok Industries Ltd (down 19 per cent), Texmaco Rail & Engineering Ltd (down 19 per cent), MOIL Ltd (down 16 per cent) and Ashoka Buildcon Ltd (down 16 per cent).
ICICI Securities said the small cap index has retreated from 15 years resistance trend line drawn adjoining 2007-2021 high, indicating profit booking after 50 per cent rally seen in March-October period amid overbought conditions.
"In a secular bull market, secondary correction is a common phenomenon wherein small cap index has a tendency of correcting 12-15 per cent from swing highs. Thus, we believe ongoing correction would make broader market healthy," said ICICI Securities.
The brokerage believes the focus should be on accumulating quality stocks backed by strong earnings in a staggered manner.
Santosh Meena of Swastika Investmart also suggested that the ongoing correction should considered a routine occurrence within the framework of a structural bull market, characterised by a retreat following a period of exuberance in midcap, smallcap, and SME sectors.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said that since the valuations in mid and small cap space are higher than that of large caps, this weakness is likely to persist, Vijayakumar said on Wednesday.
"Safety is now in large caps particularly in banking majors which are fairly valued," he said.
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