Global brokerage firm Jefferies said that the recent correction in smallcap and midcap stocks is healthy but does not reflect a larger meltdown. The correction came after the Association of Mutual Funds in India (AMFI) issued an advisory to its members, urging to moderate inflows to small and midcap schemes and also focus on rebalancing their portfolios.
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Jefferies gives this reason for selloff spree
Jefferies said that Sebi chief’s froth warning and ICICI Prudential Mutual Fund move to suspend fresh subscriptions through lumpsum mode into its small cap fund and midcap fund have resulted in the selloff spree in small and mid-cap stocks.
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Smallcap, midcap stocks fall: Sebi chief warning
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Sebi chairperson Madhabi Puri Buch gave a froth warning on smallcaps and midcaps, saying, “There are pockets of froth in the market. Some people call it a bubble, some may call it froth. It may not be appropriate to allow that froth to keep building.”
What AMFI notice said on smallcap, midcap stocks
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The AMFI notice was issued after Securities and Exchange Board of India flagged concerns about a potential buildup of speculative activity in small and mid-cap segments which have experienced significant inflows. This raised concerns about their resilience in the event of a sharp downturn in the market.
Sebi also said that it is reviewing stress tests conducted by these funds.
How much have smallcap, midcap stocks dropped?
The Nifty Small Cap index slumped over 5 per cent to 14,295 on March 13. Nifty Mid Cap index lost over 4 per cent to 45,971. Data shows that more than 80 per cent of stocks in the BSE SmallCap index have recorded negative returns since February 19.
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