Sensex near record highs but nearly 160 stocks hit a fresh 52-week low on BSE in July

The S&P BSE Sensex hit a fresh record high on 36,747 on Wednesday but momentum soon fizzled out but the real carnage was seen in the small & midcap space as nearly 160 stocks hit a fresh all-time low on the same day, a sign which does not augur well for the bulls.

As many as 158 stocks on the BSE hit a fresh all-time low on the BSE include names like Varroc Engineering, Orissa Minerals, Hindustan Aeronautics, Fine Organic Industries, Cochin Shipyard, ICICI Securities, Apollo Micro, and GIC etc. among others.

To put things into perspective, the Midcap index is down by about 16 percent from its 52-weeks high and the Smallcap index is down 21 percent from its respective 52-week highs. On the other hand, largecaps have been able to maintain positive momentum in 2018.

“We believe that large caps are likely to outperform mid and small caps over the next couple of quarters. For stocks which are under pressure, investors should reassess the fundamentals and decide based on fundamentals,” Vivek Ranjan Mishra, Head of Fundamental Research at Karvy Stock Broking told Moneycontrol.

What should investors do with stocks which are hitting fresh all-time lows? Well, the decline is significant and at best it can be a hold. But, investors should be careful in what they buy and hold because only quality will be able to survive in the current environment.

The strategy has to be stock specific, and the focus should be on to look for companies with strong fundamentals. The idea is to be patient and avoid doing leverage trade. Given how volatile the market is, investors should use strict stop losses to avoid getting caught on the wrong side of the trade.

“Midcap looks promising at the current level, investors always look for the sector which has more steam in it. Midcap has a tendency to outperform the key benchmark index like midcap IT, FMCG and Consumption,” Ritesh Ashar, CSO at KIFS Trade Capital told Moneycontrol.

“Largecaps in the past 2-3 months have outperformed and will lead the show; however, there are some midcaps that will continue to do well irrespective of broader trends. Looking at the recent correction in small caps the valuation of stocks looks attractive one should start accumulating the smallcap stocks which look fundamentally sound,” he said.

Atish Matlawala, Sr Analyst, SSJ Finance & Securities said that the current rally is led by few stocks and is not broad-based. Midcaps and small caps are bleeding and many of them are trading near 52-week lows.

“Companies with the highest level of integrity with a high standard of corporate governance and are trading at reasonable valuations should be accumulated in this fall with a view of at least 2 years,” he said.