Paytm; BCG, Delta Corp, ZEEL, YES Bank shares: 55% of mid & smallcaps in bear grip; fall up to 65% amid carnage

Broader markets have been experiencing heavy sell-off at Dalal Street lately. As of Wednesday's close, the BSE smallcap index has crashed about 13.5 per cent from its 52-week, while the BSE midcap index is down about 7 per cent from those levels. However, the stock-specific wounds are deeper.

The analysis of BSE mid & smallcap 400 index, suggested that 222 shares, or more than 55 per cent, are in the beer grip. It means that more than half of the top second-rung counters have corrected at least 20 per cent from their respective 52-week highs. A stock or an index is said to have entered the bear grip when it falls 20 per cent or more from its recent peak.

The lesson from market history is that frothy valuations are unsustainable. The blood bath in the broader market is hardly surprising to sane minds in the industry. Investors should appreciate the following facts. There is room for the broader market to correct more since the valuations continue to be elevated, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"Investors should now focus on largecaps and quality midcaps. The turbulence in the market will give cherry picking opportunities. From now on irrational exuberance will take a back seat and rational valuations and quality will be the driving force. This turbulence will separate the men from the boys," he said.

Broader markets have been hit hard following the secular outperformance compared to the larger peers after Sebi raised concerns on their valuations and asked mutual funds to curb fresh inflows in the broader market space. Profit booking ahead of financial year closing is another key reason for the beating of the broader markets.

While retail investors are concerned over the recent sharp slide in midcap and smallcap shares, foreign brokerage Jefferies said it is not a 'meltdown' but just another healthy correction. The foreign brokerage said this is not a repeat of the 2018 scenario, where the smallcap index had corrected over 45 per cent.

While Jefferies did not rule out more correction in the broader market given the surge in small and midcap volumes and strong inflows to mutual fund schemes, it highlighted instances where a sharp surge in the broader markets over a period was followed by a correction, CNBC TV18 reported.

One97 Communications, the parent company of fintech platform Paytm, has topped the list with a 65 per cent fall from its 52-week high at Rs 998.30. The stock had settled at Rs 351.9 on Wednesday. The deadline of March 15 to windup operations of Paytm Payments Bank is just hours away.

Rajesh Exports and Brightcom Group (BCG) are the other top beleaguered stocks from the broader space, which are down 57 per cent each from their respective 52-week highs. Delta Corp is another name which has crashed about 55 per cent from its 52-week highs amid notices of heavy GST demands by authorities.

Polyplex Corporation is another counter which is down 53 per cent from its 52-week highs, while Zee Entertainment Enterprises (ZEEL) has also lost more than half of its value from its highs in the last one year as its merger deal with Sony Pictures Network went into a jeopardy.

Mid & small cap indices have outperformed the Nifty 50 by 30-50 per cent in last one year and could be due to strong flows in funds focused on mid/small caps. On the other hand large cap stocks have seen outflows. As a result, Mid/Small cap stocks are trading at a significant premium to large cap, said Mirae Asset Mutual Funds.

"Investors should invest based on their risk profile and continue allocating via SIPs. We prefer large-cap oriented funds and hence any fresh allocations can be made in diversified funds like large cap, flexicap and multicap. Hybrid funds, given their flexibility in asset allocation can also be made part of core portfolio," it added, suggesting elections, oil price trend, rate cut signals and geopolitical tensions are key factors impacting the markets.

The recent sell-off and stock specific actions has sent IIFL Finance, Campus Activewear, Sharda Cropchem, MTAR Technologies, Gujarat State Fertilizers & Chemicals, SJVN, Navin Fluorine International, KRBL and Swan Energy tumbling 30-40 per cent each from their highs.

ITI, Network 18 Media, Vedant Fashions, Tanla Platforms, RHI Magnesita, Angel One, NBCC (India), JM Financial, Rashtriya Chemicals and Fertilizers, HLE Glascoat, YES Bank, Nazara Tech, IRFC, Deepak Fertilisers, RVNL, Devyani International, MMTC, Lux Industries, Syrma SGS, Aether Industries, VIP Industries, Sterlite Tech, MRPL, FACT, Bandhan Bank and others have lost more than one-third of their value from the 52-week highs.

Trident, NHPC, Indian Overseas Bank, TV18 Broadcast, GIC of India, UCO Bank, Engineers India, NLC India, Finolex Cables, PVR Inox, Five-Star Business, Shyam Metalics, Craftsman Automation, Praj Industries, Westlife Foodworld, NMDC Steel, JBM Auto, Saregama India, Central Bank of India, Laxmi Organic, Varroc Engineering, Allcargo Logistics and IRB Infra are also among the stock in the bear grip.

Most mid- and small-cap. stocks are still trading at full-to-lofty valuations and well above their fundamental value despite the sharp correction in recent weeks, said Kotak Institutional Equities.

"We are not sure if the correction marks a reversal of the market to fundamentals and numbers from sentiment and narratives. If it is the former, many low-quality stocks may still have a long way to fall, in our view," the brokerage added.