Short Call | March may not be any different from February for small-midcaps; UltraTech Cement, Coal India in focus

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India’s smallcap and midcap stocks have been caught in a brutal selloff, suffering their steepest decline since the Covid-induced meltdown of March 2020. February turned into a bloodbath for retail investors, with portfolios deep in the red as panic-selling gripped the broader market. It seems March won't be any different either.

The BSE Smallcap index tumbled 14 percent—its first double-digit monthly decline since the pandemic crash—while the Nifty Midcap 100 shed 10.8 percent. The carnage was widespread: out of 938 stocks in the BSE Smallcap index, a staggering 321 plunged over 20 percent in just a month. For the record, some stocks like Zen Technologies have corrected nearly 60 percent in just two months.

The rout runs deeper still—243 smallcap stocks have now erased more than half their value from their 52-week highs, leaving investors reeling.

The selloff intensified last week, pushing the Nifty Midcap 100 to its lowest level since March 27, 2024, while the Nifty Smallcap 100 slumped 3 percent to its weakest close since March 19, 2024. Market sentiment remains fragile as fears of further downside persist, driven by relentless selling, weak global cues, political uncertainty, and liquidity concerns.

Warnings about overheated valuations in the small and midcap space have grown louder. Analysts remain cautious on small and midcaps due to expensive valuations. And despite the correction, they don’t believe valuations have eased enough.

Adding to the pressure are concerns over a potential global slowdown, a weak monsoon affecting rural demand and construction, and a slowdown in domestic retail inflows into equities.

With volatility gripping the broader market and no clear bottom in sight, investors remain on edge, bracing for what could be another turbulent month ahead.

UltraTech Cement (Rs 10,348, 2.2%)

Conducted an investor's meet to share strategy behind cables and wires (C&W) foray.

Bull Case: The company aims to expand its consumer reach and has identified C&W as a strategic fit, given its immediate adjacencies to the existing core construction value chain. At the same time, the company continues to strengthen its leadership position in cement through both organic and inorganic expansions beyond FY27.

Bear Case: Any material increase in costs or sharp decrease in cement prices shall weigh on the company. Further, any lack of residential projects or muted residential demand shall also affect sales.

Coal India (Rs 360, -2.3%)

Production for Feb declines by 0.8 percent from last year

Bull case: Coal India’s dominant market position, stable demand from the power sector, and a strong dividend yield make it an attractive long-term bet. Despite short-term production hiccups, the company still has a chance to meet its annual target, and any uptick in economic activity could boost offtake. Additionally, Morgan Stanley’s bullish stance and a Rs 525 target price signal strong upside potential.

Bear case: The drop in both production and offtake, coupled with sluggish power demand, raises concerns about Coal India’s near-term earnings. If inventory buildup persists and offtake remains weak, it could lead to downward earnings revisions. With the stock already 35 percent off its highs, sentiment may remain weak unless operational performance improves.