Following a 4% decline in the Nifty Smallcap 100 index on Monday, retail investors are worried whether the party has ended in riskier bets. When we screened market data, we found that LIC, whose equity portfolio was worth Rs 13 lakh crore in December-end, sold 111 stocks listed on NSE last quarter. On the other hand, LIC holdings also went up in 58 companies.
Among smallcaps, Kaveri Seed was LIC ownership reducing by about half to 2.66% in Q3. In MOIL, LIC stake fell from 7.42% to 5.46% quarter-on-quarter, shows ACE Equity data.
Other smallcaps on the sell list include PTC India, Karnataka Bank, South Indian Bank, Easy Trip Planners, GIC Housing Finance, Strides Pharma and Reliance Infrastructure.
At the end of the December quarter, LIC had 277 stocks in its portfolio where the holding was above 1%. Among largecaps, LIC reduced stake in Hindalco, Adani Ports, ICICI Bank, Dr Reddy’s Labs, Tata Motors, Bajaj Auto, HDFC AMC, Hero Moto, HCL Tech and Lupin.
What should investors do?
The recent rally in smaller stocks has left investors divided into two camps. While on one hand, many big fund managers and brokerages have been warning against the unsustainable valuations in the broader market, retail investors have refused to pay attention.
A deeper correction could, however, be in the offing in pockets of the market where valuations are high and the earnings haven’t been supportive enough to hold up the price.
“With the strong catch-up of midcaps and smallcaps in the last couple of months, we believe the margin of safety at current levels has reduced as compared to that available in largecaps in terms of valuations. Keeping this in view, the broader market may see some time correction in certain pockets in the near term and flows will likely shift to largecaps,” said Neeraj Chadawar of Axis Securities.
The brokerage firm has shifted its strategy towards the theme of ‘Growth at a Reasonable Price’ and quality names.
Dalal Street veteran Deepak Shenoy, however, said the correction in smallcaps is normal. “It is not even a correction, it is about 3-4% off the top. You want such times just to even out the over ebullient times where you want to balance things out. But some froth was there in some of the stocks that have corrected a little bit. We are expecting a little more, but that is just part of the game. If you do not have these times, how are you going to have the good times?,” he said.
Pointing out that valuations for midcaps and smallcaps are at 20-25% premium to largecap peers, Satish Ramanathan of JM Financial said it is likely to continue if the structure of the market remains the way it is. “For the gap to converge, it either requires some change in sentiment or it has to be induced by external flows from FIIs,” he said.
(Data: Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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