Why are mid- and small-cap stocks falling: Market Drivers: Why have small- and mid-cap stocks bled even as Nifty rose?


MUMBAI: While benchmarks may have breathed a sigh of relief as they weren’t subject to the knocks they saw on Friday, small and mid-cap stocks couldn’t.

The vast market has come under further selling pressure as investors become nervous about future growth prospects in light of the emergence of a new variant of COVID-19 omicron. The new variant, which is said to be more contagious than the Delta variant which ravaged the country in March-May, has rekindled fears of blockage among investors.

The Nifty Midcap 100 and Nifty Smallcap 100 indexes cracked 1.4 percent and 2.6 percent, respectively, after Friday’s sell-off.

The new variant called into question investor optimism about the resumption of national economic growth following the reopening of the economy. If the new variant becomes contagious, it will force states to reimpose restrictions that will cloud the profit outlook for medium and small businesses, whose fate is closely tied to that of the economy.

Private banks under the sell button
Fears surrounding a new variant of COVID-19 have also cast doubt on investor optimism about the return of India’s long-awaited capital spending cycle.

One space that is expected to benefit immensely from the return of private sector investment is the private banking space focused on corporate lending. However, if the new variant puts the brakes on restarting this cycle, it could delay investors’ expectations for the growth of business loans.

It’s no surprise, then, that Axis Bank, ICICI Bank and State Bank of India – three horses backed to benefit most from a new round of private investment – fell 4-5%.

– the stock of value?
On the stock market today, for every investor who says that a stock is expensive, there is another to say: “Everything is relative”. At least the brokerage firm Kotak Institutional Equities is the latter when it comes to HCL Technologies.

The IT major’s shares appreciated much less than its peers, largely due to its low margin profile and patchy growth performance as other brothers flew high. However, Kotak Equities sees value where others see flaws and believes the company’s current relative valuations make the risk / reward ratio attractive.

Investors seemed to believe the same, as shares of the Noida-based IT firm ended up nearly 1% and outperformed most of the market.