Market Movers: Why midcap & smallcap stocks bled even as Nifty rose?

Asia's Tech News Daily

Why are mid and smallcaps falling, Midcap stocks, Smallcap stocks, Broader markets, Omnicorn, Why smallcap stocks declined, Why midcap stocks declined, HCL Tech, Bank stocks

MUMBAI: While the benchmark indices were able to breathe a sigh of relief as they were not subjected to the battering they saw on Friday, midcap and smallcap stocks couldn’t.

The broad market came in for another bout of selling pressure as investors become twitchy about future growth prospects in light of the emergence of a new COVID-19 variant omicron. The new variant that is reportedly more contagious than the Delta variant that ripped through the country back in March-May, has renewed fears of lockdowns among investors.

The Nifty Midcap 100 and Nifty Smallcap 100 index cracked 1.4 per cent and 2.6 per cent, respectively after the severe sell-off on Friday.

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The new variant has brought into question investor optimism for revival in domestic economic growth on the back of the reopening of the economy. If the new variant becomes contagious it will force states to re-impose restrictions that will dim the earnings outlook for mid and small-sized companies, whose fate is intertwined with that of the economy.

Private banks under sell button

The fears around a new COVID-19 variant has also brought into doubt investors’ optimism for the return of India’s much-awaited capital expenditure cycle.

One space that was expected to benefit extremely from the return of private sector capex is the corporate-loan focused private banking space. However, if the new variant throws a spanner in the restart of that cycle, it could delay investors’ expectations on growth for corporate loans.

No surprise then that Axis Bank, ICICI Bank, and State Bank of India – three horses backed to benefit most from a new private capex cycle – tanked 4-5 per cent.

HCL Tech

– the value stock?

In the stock market today for every investor who says a stock is expensive, there is another to say: “It’s all relative”. Brokerage firm Kotak Institutional Equities is the latter, at least, when it comes to HCL Technologies.

Shares of the IT major have appreciated much less than the peers largely due to its weak margin profile and patchy growth performance when other brethren have been flying high. However, Kotak Equities see value where others see fault and believe the company’s current relative valuations make risk-reward attractive.

Investors appeared to believe the same as shares of the Noida-based IT firm ended nearly 1 per cent higher and outperformed most of the market.

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