Mid, smallcaps lose steam, and the interest of brokerages
Brokerages have stopped coverage of nearly 335 companies in the segment in the last one year.
Brokerages have stopped coverage of nearly 335 companies in the segment in the last one year while fewer analysts are covering another 225 companies. Analysts said the underperformance driven by a series of defaults and corporate governance issues have resulted in investors staying away from many of them.
Some of the companies where analysts discontinued coverage in the past one year include PC Jeweller, Monte Carlo Fashions, UFO Moviez India, Manpasand Beverages, RPP Infra Projects, Kellton Tech Solutions, Intrasoft Technologies, Kwality and Adlabs Entertainment among others. Analysts at brokerages cover over 800 companies in India.
“There are several reasons for discontinuing coverage like corporate governance issues, steep fall in their stock prices, and non-availability of data,” said Pankaj Pandey, head of research, ICICI Securities.
The CNX small-cap index has dropped 38 per cent and the mid-cap index has declined 24 per cent from their peak in January 2018. Many stocks have fallen 50-70 per cent, erasing majority of the gains made in the last five years.
Coverage of Dish TV reduced from 30 brokerages to 20 in the last one year, while that on CG Power has declined from 15 analysts to 6. Stocks such as DHFL, J Kumar Infra, Asian Granito and Reliance Power have seen 50 per cent decline in analysts’ coverage.
“The tide seems to be turning in favour of the large-caps in the past one year as there are macro headwinds, concerns about corporate governance, liquidity issues and delay in pickup in earnings growth in smaller companies,” said Abhimanyu Sofat, head-research, India Infoline.
The BSE Sensex and NSE Nifty, which comprise large-cap stocks, have given returns of 14 per cent and 10 per cent respectively since January 2018.
Shares of Yes Bank, Emami, IRB Infra, Sun TV, Dilip Buildcon, Skipper, Simplex Infra, Quess Corp, have fallen over 50 per cent in the last one year.
Many companies, who proactively approached analysts for coverage, are staying away from the spotlight because of the lack of earnings recovery. “Many of these companies do not have investor relations departments and analysts are finding it tough to estimate their numbers,” said Pandey.
“Though it is difficult to time the turnaround and beginning of a broad-based recovery in the mid-cap space, we believe that investors could look at certain pockets of companies or sectors where the valuations have turned supportive now,” said Gaurav Dua, head – capital market strategy at Sharekhan by BNP Paribas.