Smallcaps look set to erase losses sparked by Sebi's froth warning

The Nifty Smallcap 250 index has gained nearly 6% in a week though its 1-month change still reflects an over 1% value erosion. Smallcaps have been in the top form, outperforming their large and midcap peers over the past 12 months. The Nifty Smallcap 250 has jumped by over 70% during this period.

On Wednesday, around 10:50 am, the index was up by over 100 points or 0.70% at 15,000 level.

“The bounce back in small-cap shares was expected to be sharp,” a Bloomberg report said quoting Chokkalingam G, a strategist at Equinomics Research. Investors have been preferring smaller companies with better business fundamentals and “there is clearly a shift to quality,” he said.

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The rout followed a relentless advance in such shares, driven by robust earnings and a recurring gush of cash from individual investors. The rebound underscores the continued bullish outlook for smaller firms, which are expected to benefit more than their larger peers from the nation’s robust economic growth.

Sebi’s comments had triggered a sharp selloff in smaller companies. The S&P BSE Smallcap Index erased more than $80 billion in market value in less than two weeks through mid-March, Bloomberg report said.

On Tuesday, Sebi Chief Madhabi Puri Buch said that the current record valuation for local equities was an emphatic vote of confidence by foreign portfolio investors (FPI) in the country’s growth prospects.

“Why is it that our markets are commanding this price to earnings multiple which is higher than not only the average of the world indices but also when compared with various nations?” Buch at a CII event on corporate governance.

“At 22.2x, yes, some people say that we are an expensive market but, still, why is the investment coming? Because this is a reflection of the optimism and the trust and faith the world has in India today that we are commanding this kind of multiples in our markets,” she added.

Notwithstanding some late selling, (FPI) were net buyers in March with equity purchases worth Rs 35,098 crore. The month's performance eclipsed the lacklustre show over the previous two months, aided by strong buying trends in capital goods, automobiles, financials, telecom and real estate.

In 2024, so far, FPIs have purchased domestic shares worth Rs 10,893 crore. In January they were net sellers and sold equities worth Rs 25,744 crore and followed it with purchases worth Rs 1,539 crore in February.

While broader markets have performed strongly in the past 12 months, headline index Nifty's returns have been nothing short of impressive. The 50-stock index has given returns of nearly 29%.

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