Will smallcaps regain their lost glory?

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Will smallcaps regain their lost glory?

The BSE Smallcap index that basked in the glory of strong returns in the initial months of its launch, seems to be taking some time to regain its shine.

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The BSE Smallcap index that basked in the glory of strong returns in the initial months of its launch, seems to be taking some time to regain its shine.

From April 11, 2005, when the index was launched on the BSE, till September 22, 2005, the smallcap index raked in a lot of moolah. The index outperformed the Sensex by gaining 55.27%, while the Sensex gained only 33.66% in the same period. 

But this phase did not last long; On September 22, 2005, the BSE Smallcap index crashed on the back of regulatory authorities' diktat and the government's red alarm over their meteoric rise. On September 22, the index fell by 460 points and was trading at the 5579.25 levels.  

Since the September crash, the index have been underperforming the Sensex. In the first leg of the ongoing bull run, which was between Nov 29, 2005- May 10, 2006, smallcap index gained 39.52% and between June 15( when markets started recovering after the May crash)- till now the percentage gain is in the same range. In comparison to this, the Sensex had gained by 41.21% in the first leg and by 43.56% in the second leg of the rally.

Moneycontrol analysis shows that as of November 24, 2006, nearly 460 companies are trading below their face value at a time when the Sensex is enjoying the bull ride with every psychological barrier being crossed smoothly. And interestingly all these companies are small caps. The difference in their face value and trading price of these companies is between 0.01p- Rs 17.

 To name a few, these are companies like Gujarat State Finance, which is a Rs 49.65 crore company and is trading at Rs 5 less than its face value. The face value was at Rs 10.

Parekh Platinum, is another company that is trading below its face value. As of Nov 24, the stock was trading at Rs 6. Pentasoft Tech is also trading Rs 9 below its face value.

But, experts like Ambareesh Baliga, Karvy Stock Broking, still feel that smallcaps will come and contribute in this rally. With the markets continuing to move up and not seeming to breathe, Baliga expects to see some consolidation happening this month and says that possibly the midcaps and the smallcaps will start moving now.  

He said that the action will slowly shift to the midcaps and smallcaps, since the largecaps have already moved up quite a lot. "For example, for last couple of days, it was basically ONGC and Reliance that were playing on the markets. It is going to be more of midcaps and smallcaps going forward now."

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