Every three of four retail-heavy stocks in the BSE 500 pack – mostly midcaps and smallcaps – have fallen more than 20 per cent over their respective one-year highs, suggesting a bear grip.
In total, there are 47 BSE500 stocks, where retail ownership was in excess of 20 per cent in the December quarter. Among them, 35 stocks have fallen between 20 per cent 63 per cent over their 52-week highs.
“The corrections in the largecap space have brought valuations nearer to the long term averages and there are definitely good investable opportunities. But in the mid and smallcap space, the dispersion in correction has been very varied and hence in the midcap and smallcap space opportunities are very company-specific,” said Aniruddha Naha, Head – Equities, PGIM India Mutual Fund.
Sequent Scientific is the worst hit stock, with a 63 per cent fall. Drug maker Wockhardt is down 61 per cent over its one-year high. Bajaj Consumer Care too has plunged over 50 per cent. Data showed 25 out of 35 of these stocks have fallen more than 30 per cent.
Indiabulls Housing Finance, Aarti Drugs, IOL Chemicals, PTC India and Indiabulls Real Estate have fallen 43 per cent to 49 per cent.
City Union Bank, Procter & Gamble Health, Nocil, Rain Industries, Garware Technical Fibres,
Greaves Cotton, Maharashtra Scooters, SpiceJet and Engineers India are some of the stocks falling 30-34 per cent.
Market vateran Shankar Sharma said rising interest rates in the past crushed small caps but noted that smallcap valuations today are not overvalued. He said the worst is over for that space, at least on a stock-by-stock basis, adding that he does not see a 20-30 per cent incremental fall for a number of names in the small cap space.
“We have been through cycles, we know that rising rates are relatively less impactful on larger companies because they do not have much debt burden; they generate free cash and we understand all that. The reality of India as we speak right now is that, the rising interest rates will hurt basically the overvalued end of the market, overvalued end of the market is basically two; the large caps and the new age listings. The small caps on the other hand are not overvalued,” Sharma said.
He further added that he does not find stocks trading at 40 times and 50 times earnings.
“I find many stocks trading in the single digit multiples, at the highest– I mean I am talking about one year forward numbers, maybe 10-12 times, two times book value for 20 per cent ROEs, that is not expensive. But Hindustan Lever is still expensive; Asian Paints is still expensive; HDFC Bank by any measures of the kind of numbers it has and what it will deliver is reasonably expensive,” he said.