Market Movers: What triggered bloodbath in smallcap and midcap stocks?

Nearly one out of five stocks traded on the National Stock Exchange ended in the red today while over 300 stocks closed at the lower circuit limit. The intensity of the selling took most of the market by surprise even as the benchmark indices managed to keep a poker face amid the mayhem.

The Nifty Smallcap index plummeted over 2 per cent and the Nifty Midcap 100 over 1 per cent albeit volumes were not as high as the price pressure.

Some market participants attributed the sudden selling to profit-booking, given the recent concerns over-exuberance in the broader market. However, that argument is only partially true as midcaps and smallcaps are still not trading at the exorbitant premiums they had over largecap peers in the heydays of 2017.

Another reason that could explain the bloodbath is the sudden cautious action of India’s oldest stock exchange BSE on Monday. The BSE released a circular on Monday notifying trading members that it is going to place an additional price limit on securities listed on its bourse from August 23.

BSE said that its move is aimed at maintaining market integrity and curbing excessive price movement. In other words, the stock exchange just called cops on the bull market party. The new surveillance measure intends to cap the price movement in stock on a weekly, monthly and quarterly basis over and above the daily price band.

Money managers suggested that this is a signal from the regulator that they are not comfortable with the New Year’s Eve party scene that has unfolded in the broader market throughout this year. Investors have taken the hint and fled the scene.

Retail favourites suffer

In a sell-off such as today’s, it is obvious that retail investors will be the first to run towards the exit gate given that they hardly believe in long-term investing. Most retail investors are short-term traders as is obvious from their record high contribution to daily volumes.

In such a case, sectors where retail presence has been highest saw exorbitant selling today. Shares of real estate and metal companies were bruised in the sell-off as they suffered from the retail flight. The Nifty Realty index ended 2 per cent lower, while Nifty Metal fell nearly 3 per cent.

Adding to the metal index’s misery were the bearish comments of veteran asset manager Shankar Sharma, who on Monday said that his fund is trimming positions in Indian and global commodities plays.

slides and then some more

Shares of the auto ancillary major slumped over 3 per cent after a dreadful performance in the June quarter. The company reported weak margins and suggested that the semiconductor shortages are going to weigh on operations going ahead.

More importantly, though it is the spike in the company’s net debt sequentially that had investors worried given that the company had indicated it is working towards bringing debt lower. The company’s net debt soared 28 per cent on-quarter to Rs 6,158 crore in the June quarter after falling for four successive quarters. Talk about unwanted surprises!