In 2019 so far, benchmark indices have not been able to give positive returns to the investors. And some stocks are down many-folds
Stocks of 30 companies from the BSE universe fell 60-92 percent from their all-time highs as on February 22, 2019. Out of 399 stocks that have m-cap of more than Rs 1,000 crore in the BSE universe, 397 were trading below their respective all-time highs.
Companies with market cap higher than Rs 1,000 crore and whose stocks touched record highs since start of 2018 were considered for this story.
Top 30 stocks fell 60-92 percent from their all-time highs and the rest 180 plunged 30-60 percent from their record highs.
In 2019 so far, benchmark indices have not been able to give positive returns to the investors. And some stocks are down many-folds.
Even the year 2018 proved to be lacklustre in terms of returns from the stock market.
"For the first time in the last 4 years, the mid and the smallcaps are readily available below their historical average P/E ratios of 18.52x and 16.53x, respectively. Lot of midcaps corrected sharply on the back of technical factors like higher margins, selling of promoter stake increase in promoter pledges that impacted the price performances of these stocks etc," Mayuresh Joshi, Fund Manager at Angel Broking told Moneycontrol.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors said for the past few quarters, largecap stocks are reporting numbers better than mid and smallcaps.
Also, results of such companies have been very volatile owing to volatility in commodity prices, trade tensions and GST implementation, she added.
Analyzing around 2,000 companies, Q3FY19 results suggest that high cap companies' sales and margins have been outperforming mid-cap peers, she said.
The median sales of high cap companies grew by 16 percent and net profit grew by 10.2 percent while for mid and small cap companies, sales grew by 12.5 percent YoY while net profit grew by 6.3 percent.
After sharp correction in these stocks, what investors should do?
Siddharth Sedani, Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers
Cooling valuations has skewed the risk-reward gauges in favour of some stocks. Of the 500-odd stocks with a market cap of Rs 1,000-8,000 crore, as many as 230 stocks have tanked more than 30 percent since the turn of the year. Sixty stocks have lost more than 50 percent of their value.
The global nature of the equity-market correction is corroborated by the fact that most domestic fundamentals in India are robust. The correction may have opened up opportunities but investors should be mindful of their asset allocation.
If you find that your portfolio is light in this segment, then use the correction as an opportunity to shore up your presence in small-cap funds. While this segment is prone to high volatility, sharp corrections provide an ideal opportunity to invest as then the risk-return profile is more in your favour.
We expect the market to re-calibrate and assume a clear direction only on the outcome of the forth-coming general election becoming clear. In the meanwhile, the broad market is likely to be in a consolidation mode, though with heightened volatility.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors
We expect the volatility in earnings to continue for 2019, though companies, where return on equity exceeds the cost of capital with lesser leverage in books, may be chosen for bottom-up research for investing purposes.
Sameer Kalra, Founder & President (Research), Target Investing
It is right time to identify the investable mid cap & small cap stocks which can be filtered on certain criteria such as debt free or only debt for capacity expansion, high cashflow companies, technology, moat and pricing power.
These are basic criteria which have no relation with stock prices which is mostly down in these companies cause of selling by HNIs and MFs which returns in positive environment which makes a 3x-5x return in bull markets.
Till elections mid cap & small caps will underperform Nifty50 as the incremental flows will be allocated to large caps and to some portion will be allocated to rest stocks.
But post elections there would be reversal as the outcome will get adjusted to the expectations and quarterly results will be on low base of December 2018 and onwards.
A K Prabhakar, Head -Research, IDBI Capital
There are many stocks which are very attractive in value terms and we are recommending our clients to buy on staggered manner as we expect good returns in next 18-24 months.To name a few Mahindra Holidays, Bharat Electronics, Sun TV Network, Gujarat Alkalies, GSFC, Cyient, BSE Limited, Tata Elxsi, Gujarat Gas, ICICI Prudential, Federal Bank, JK Paper, MM Forgings.