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Santosh Meena of Swastika Investmart highlights 3 reasons for the sell-off in small & midcaps

We believe capital goods, infrastructure, and realty stocks may do well in coming years as Capital Goods and Infra sectors are coming out of 14 years of vanvas and the Nifty Realty index is breaking out 10 years of consolidation.

August 14, 2021 / 08:02 AM IST
 
 
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Santosh Meena, Head of Research, Swastika Investmart said that the recent sell-off in the mid and smallcap space is a shakeout phase where the market is taking out weak hands before resuming its classical bull run.

In an interview to Moneycontrol’s Kshitij Anand, Meena said that we are in a structural bull market where this kind of shakeout phases are a part of this journey, and investors should come out of the stocks that have quality concerns and enter into quality stocks in the ongoing correction.

Edited excerpts:

Q) We saw a sell-off in the small & midcaps in the week gone by after the BSE circular. Do you think there could be some in the offing?

A) There are some reasons for correction in midcap and smallcap space but the most important reason is that the Market is not charitable enough to make you easy money and the last few months was like everyone can find a stock where he/she can make 5-10% easily in a couple of days.

Close

The recent selloff in midcap and smallcap space is a shakeout phase where the market is taking out weak hands before resuming its classical bull run. Here are few factors --

a) Sectoral Rotation: Some rotation is also visible where money is moving towards some quality large-cap stocks from midcap/smallcap space as there is a technical breakout in most of the counters after an underperformance of many months.

b) BSE Circular: There are other technical reasons like the new circular by BSE to curb speculative movement in some of the BSE-listed stocks but this is just an excuse for a correction in the market otherwise it should not have any meaningful impact on the overall market.

c) Selloff from HNIs to meet leverage cost: Many IPOs at the same time are also causing selloff by HNI investors as they need more money to park in the primary market and the second important thing is that the last few IPOs did not witness very good returns to HNI investors compared to their subscriptions to meet their leverage cost, therefore, they had to sell in the secondary market to cover their losses.

Q) What should be the strategy of investors with respect to the small & midcaps space?

A) We are in a structural bull market where this kind of shakeout phase will be part of this journey. The correction has started at the beginning of August month and it gets momentum in the last two trading sessions which have taken out lots of weak hands and we may see a bounce back from here.

There is a beautiful quote in the market "Sell your mistakes in the Bull market and buy your regrets in a bear market, so investors should come out of the stocks that have quality concerns and enter into quality stocks in ongoing correction.

Q) After a sharp rally (almost vertical move) seen in the small & midcaps, the smart money has started moving towards the IPOs or largecaps? What are your views?

A) As I said, some rotation is also visible where money is moving towards some quality large-cap stocks from midcap/smallcap space as there is a technical breakout in most of the counters after an underperformance of many months.

Importantly, FIIs come back in August month after heavy selling in July and they generally prefer high-quality large-cap stocks and many IPOs at the same are also causing sell-off by HNI investors as they need more money to park in the primary market.

Q) Any small & midcaps worth looking at after the recent selloff and why?

A) We believe capital goods, infrastructure, and realty stocks may do well in coming years as Capital Goods and Infra sectors are coming out of 14 years of vanvas and the Nifty Realty index is breaking out 10 years of consolidation.

PNC Infra is one of the institutional favorite stock which is giving a good buying opportunity in the demand zone of 285-275 which coincides with its 50-DMA.

Carborundum Universal is our top pick from capital good space which is a Murugappa group company with almost zero debt on the book. It has posted strong numbers in Q1 quarters and witnessing a turnaround story. Technically it is respecting its 20-DMA to resume its uptrend.

Sobha from the real estate sector is also giving great buying opportunity after a recent correction where it has a strong demand zone of 555-535 which also coincides with its 50-DMA. The real estate sector is showing strong growth momentum where Sobha stands out with its good performance.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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