It was the week of Valentine’s Day and love was in the air. You know what wasn’t in the air? The ever upbeat bullish sentiment of retail investors in mid-caps and small-caps. Portfolios of investors turned red as roses as the Nifty Midcap 150 index lost 7.4 per cent and the Nifty Smallcap index 9.6 per cent just in the week gone by. From their respective 52-week highs, the indices are down 18.5 per cent and 22.3 per cent.
Only recently a leading fund manager had warned of froth in small- and mid-cap stocks, suggesting that investors exit these stocks, owing to bloated valuations. And even post the recent correction, the froth may not have evaporated. The price-earnings (PE) multiple of the mid-cap index shrinking from 45.4 times at its 52-week high to 34.4 times and that of the small-cap index shrinking from 32.3 times at its 52-week high to 27.5 times means the valuation is still not attractive despite the recent rout.
Love lost
Over roughly 5 months, the mid-cap index lost 4,162 points from its 52-week high in September 2024. But it took close to 6 months to gain 4,162 points to hit its 52-week high. This is worse in the case of the small-cap index. It lost 4,155 points from its 52-week high in September 2024 over roughly 5 months. But it took over 8 months to gain 4,155 points to record its 52-week high.
Basically, what took 8 months to build, took just 5 months to be destroyed. This shows how sharp corrections in a bear market can be. As they say, “Stocks go up the stairs and come down the elevator!” This is more pronounced when it comes to individual stocks.
We ran a screener to find which stocks corrected 50 per cent or more from their 52-week high. In the mid-cap space, MRPL, which took 16-and-half years to add ₹174 to mark its 52-week high of ₹289.25, took just about 12 months to lose the ₹174 from its 52-week high. In the small-cap space, Shipping Corporation of India, which took close to 17 years to add ₹221 to record its 52-week high, took only 7 months to shed the ₹221 from its 52-week high. These show how brutal and unforgiving bear markets can be. More such cases can be found in the infographic.
Triple-digit PE stocks also figure prominently in the screener output. These include Netweb Technologies, Honasa Consumer, Whirlpool of India and Data Patterns. The PE of these stocks at their 52-week high prices have shrunk from 207x, 152x, 137x and 105x to 108x, 65x, 60x and 52x respectively.
The screener considers only those stocks that are down 50 per cent or more from their 52-week highs and the 52-week highs are also their all-time highs.
Outside of this population, there are also other stocks such as Vodafone Idea, SPARC, Network 18 Media & Investments, MMTC, Akums Drugs, Easy Trip Planners, Zee Entertainment, Valor Estate and Tanla Platforms, which have lost anywhere between 51 per cent and 69 per cent from their 52-week highs (the all-time highs of these stocks are higher than 52-week high prices).
With the global macroeconomic scene changing every day, such as the US’ January inflation number coming in at a higher-than-expected 3 per cent, uncertainty is bound to prevail. FPIs have dumped mid- and small-caps for the attractive treasury yields of the US.
With volatility likely for the foreseeable future as the bulls and bears battle it out, investors need to keep in mind, before making their investment calls, that declines in market tend to play out faster than gains.
