20 Oct , 2021 By : Kanchan Joshi
MUMBAI : Mid-cap and small-cap indices witnessed sharp profit booking on Wednesday after consistent outperformance over the past few weeks.
After hitting fresh all-time high, both BSE MidCap and SmalCap dropped over 5 percent each in two sessions as investors rushed to book profit following the recent steep rally in markets.
In early trade, BSE MidCap dropped over 550 points or 2.12%, while BSE SmallCap lost nearly 840 points or 2.84%. On Tuesday BSE MidCap and BSE SmallCap fell 2% and 1.8% respectively.
“Investors should maintain caution before making fresh entry in mid- and small-cap stocks after Tuesday's movement in market, rather should wait for reasonable valuation to make fresh positions in fundamentally good stocks," said Mohit Nigam, head-PMS, Hem Securities.
Analysts says that among the derivative mid-cap and small-cap stocks, the price correction was very sharp as unwinding of the long positions near all-time high levels pulled the indices lower.
Both mid-cap and small-cap indices have outperformed the broader Sensex and Nifty indices so far in 2021 with 47% and 63% gains respectively. So far in October both gained over 6 percent each.
"Overall, we are still positive on small-caps and mid-caps for the long term, and believe that any significant dip is a good opportunity to accumulate quality stocks. We believe that companies from chemicals, EV, new age IT sector in mid and small space will continue to outperform large-cap companies due to robust demand environment in these sectors," Nigam added.
Vikas Jain, senior research analyst at Reliance Securities, says that the second quarter results will be important for the next leg of up move as any margin disappointment can lead to sharp profit booking so one has to be very selective and buy in stages of corrective action.
“Post the sharp rally in mid-caps and small-caps, profit booking is being witnessed across them as the valuations for many stocks have touched unrealistic levels. However, if we remove some of the very expensive names, then this correction does offer bottom-up opportunities, given the more relaxations being offered and pickup in economic activities, buoyant festive mood and an improved demand backdrop. The balance sheets and cash flows continue to improve as corporates tightened costs and deleverage. Going ahead, Q2FY22 earnings delivery vs earnings expectation would provide further direction to the market," said Sneha Poddar, AVP Research, Broking & Distribution, Motilal Oswal Financial Services.
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