A Brief summary of the Micro/Small/Midcap Carnage


(zygo23554) #320

We might just be at this stage now.

Discounting the rise in NIFTY SML 100 from 8500 level to 9500 between mid Dec 2017 and mid Jan 2018 - let us take the level of 8500 as the top (assumption being the final spike was all froth). From this level, the NIFTY SML 100 is now 20% down, the 2 year return on this index is below 10% and going by how the last 3-4 days have panned we may well get to negative territory on the 2Y return soon enough.

Small and micro caps are now undesired words, increasingly seeing people speaking in tones of “well managed large companies like HDFC Bank and TCS are better bets over the long term over any period of time”. People are now comparing the last 1 year return of small cap category with the 10 year track record of a large cap fund and asking questions about whether small and mid cap categories are really worth looking at. From fear of missing out we now have fear of investing, FD return of 7-8% does not appear all that bad any more :slight_smile:

While further downside is a good possibility, expected 3 year return from the current levels are looking interesting. Do your own thinking and decide at what level does one want to start deploying more money (assuming you have any left in the first place!)

Edit: Looking at the buy/sell volumes on some small cap counters (at least the ones I own), sell orders are 50-100% higher than the buy volumes since yesterday. The pressure on the downside appears to be too high, I would not be surprised if we see a 5%+ cut in the small cap index from current levels which more or less ties in with the level needed for 2Y negative returns. Time to get our shopping lists out soon, this is still the time to be choosy and steadily allocate - not yet time to get aggressive and go all out


(KunalKothari) #321

Just a 25-30% fall in highly volatile small cap indices (from a historically high peak) is nothing major.
It could get MUCH worse, and HAS gotten much worse numerous times in stock markets.
Not saying it will happen, just saying it can.
At the very least, one must be mentally prepared for much larger drawdowns, since, sooner or later, one WILL come across them.


(rvetri) #322

well said @kunalkothari

I heard in several forums that a significant part of the current investors have not yet seen their first bear market. What is happening now is just a trailer. When the full movie is in play and during the climax the desperation shall be at its peak. If one has to become a successful investor, everyone shall go through atleast a few bear markets. Also bear markets cannot be induced by wire or anybody. It WILL HAPPEN naturally.


(Karanops) #323

The WIRE article is too negative, but brings out a good point with respect to insolvency part. Many companies will go under hammer and banks will take a hair cut through nclt route. Brighter side is, banks will recover some amount out of nothing that was forthcoming. So for sentiment it’s bad but for long term it’s good. It’s better to show right picture tha doing window dressing.

I don’t know why the interest rates are high, actually it should not be more than 6 percent for a growing economy like Bharat which needs lot of investment.
This inflation thing in my honest opinion is just a sham, and I may be completely wrong.


(Aman Mutkule) #324

I will be deploying cash in small&mid cap stocks which consumption oriented companies as they offer safety as their products are in demand always despite of problems in NBFC space or any cyclic space.


(pkk123) #325

And how would people consume without NBFCs to finance that consumption?


(rupaniamit) #326

I’ve been silent observer on this thread. I don’t consider myself to be an expert on macro stuff and capable of summarizing market crashes.

However, wanted to share this beautiful post (Cheaters causing crashes?) from Prof. Bakshi that he wrote in 2005. Please read it, if you have not already. It helps to better understand utility of backward thinking and how “information asymmetry” and “sudden realization about stupidity” will create many more future crashes.

Best,
Amit


([email protected]) #327

Thanks for sharing a very nice article.

As you have mentioned, crashes will keep happening. Herd mentality of most of the investors will also continue.

Regards


(Devaki Nandan Tripathy) #328

The Small Cap Index has given back all its post demonetization gains. It is again where it was on October 2016. It raises question marks on the oft quoted belief of financialization of savings after demonetization. Interesting times, indeed.


(virajkhatavkar) #329

It is not right to see in unification of the whole small cap index. Some stocks are still doing great. For eg. Edelweiss was at 80 during Oct 2016 and even after correction it is at 190 today which makes it a 2 and half bagger. There would be a lot of poor companies in small cap index which would bring it down. But good companies have provided decent or if going on a limb I can say great returns. It just depends on what stocks you buy. Financialization of savings has been successful and you can see that in good companies.


(Devaki Nandan Tripathy) #330

Nero fiddled while Rome burned

One unique feature among all this turmoil in the market is absolute and utter failure of big and respected Funds/Institutions to perform any sort of forensic analysis. In fact fund activism by Indian institutions is totally absent.

HDFC, ICICI, Reliance MF and their foreign counterparts like Barings, Goldman Sachs, Morgan Stanley etc. and others have an investment portfolio consisting of lakhs of crores and respected highly both by market participants and by the managements. Almost all the big names that fell include names like ICICI Bank, Yes Bank, DHFL, Vakrangee, Manpasand etc were heavily owned by institutions. But the institutions not only failed to carry out any sort of forensic analysis, even when they had the resources to do so, they did not even bother to ask incisive questions in concalls. They are not just investors but trustees of lakhs of investors, and it’s their moral responsibility to do so.

So all the forensic analysis were left to individual investors like Arvind Gupta, Amit Mantri and to a lesser extent by diffsoft and phreakv6 of our forum, who must be congratulated for their outstanding work given the nature of limited resources they have. Even for that matter, Rakesh Jhunjhunwala must be praised for his grilling of Lupin/Titan in quarterly concalls, even though he had the stature and financial power to take his queries to the company top management in private.

But our homegrown stars like Prashant Jain, S Naren, Madhu Kela etc just did not want to do the heavy lifting and instead preferred to become the Lords of Macro Forecasting by coming on National TV and saying why it’s our birth right to grow at X% (where, 7 ≤ X ≤ 10) till the year Y (where, 2025 ≤ Y ≤ 2075), where the values of X and Y depending on their mood that day.


(zygo23554) #331

From your post one can make an inference that small retail investors (like us) are not at that big a disadvantage when it comes to stock picking and portfolio building. One can see enough examples of big institutions making glaring errors that look foolish in hindsight.

Embrace your mistakes, draw your learnings from them
Do not take yourself too seriously and put yourself on an imaginary pedestal which the markets can conjure up during good times :slight_smile:
Keep your head and standards high, figure out the investing process that you are best at and stick to it


(PKumar) #332

My 2 cents…Market is trying to find pattern in IL&FS default and in extrapolating them into all good companies as well. The business conditions will not be going to be same - when last year small caps were up by 30-40% on an average, no one was complaining. Warren Buffet, the great sage, rightly pointed out ’ Nothing dulls intellect like easy and free money’. The party had to stop sometimes. ‘If one cannot stomach 50%-60% drop in portfolio at times, one should not be in investment business’ - says another ‘sage’ Charlie Munger. Market will be volatile, plethora of TV analysts/reports adding ammunition to this chaos. My take would be to use this setback as buying good NBFC & other companies in small chunks (esp if one has some free capital). Jesse livermore has 2 famous quotes :
“The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.”
Lets analyse businesses and see if business conditions have changed. Sometimes we win, sometimes we learn :slight_smile:

Btw one good book on behavioural finance (which to summarise tells - we are our worst enemy as investors. Whatever helped us survive in ancient times, the same skills are killing us in investment).
http://csinvesting.org/wp-content/uploads/2012/07/the_little_book_of_behavioral_investing_how_not_to_be_your_own_worst_enemy1.pdf


(vaedermacher) #333

I think there are concerns on systemic availability of short term liquidity - RBI is in a Catch 22 situation where it cannot fully accomodate markets while simultaneously defending the currency and managing inflation. In the event of a liquidity crunch and their recent actions on Yes Bank and Axis, it is also unclear what price RBI will extract in case of a liquidity bail out, and whom it will choose to save. Skeletons in the closet are being priced in, and I’m not sure the falling prices seen recently can be solely due to individual investors exiting - indicating nervousness on part of larger institutional players who are also represented in the money markets. As we have seen with the NPA crisis, there is a domino effect that unravels over many years, and there are 2 critical things coming up for unravelling - power sector and v unexpectedly, NBFCs - the cross web of exposures is not understood yet and wide spread counter party risk is what is likely being priced in now.

PS: Leaving a link to Financial Stability Report published periodically by RBI, as per FSB standards. The link is to the section on systemic risks on account of interlinkages in the system - if you scroll to the last few pages, it covers interconnectedness of banks, NBFCs, AMCs, Insurance and HFCs and likely fallout predicted by stress tests and contagion.

https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=902


(Devaki Nandan Tripathy) #334

I don’t know whether it is the proper place to post this article or not, but if the jokes and funnies thread by @diffsoft were alive, it would have surely found a place there.

Found this on Bloomberg.

https://www.bloomberg.com/news/articles/2018-09-28/whatsapp-message-destroys-71-of-indian-e-commerce-firm-s-value?srnd=premium-asia


(Susindar) #335

Infibeam is an operators paradise. I have seen a number of times this stock go up and down by 50% in a day. Another stock I find bad is Indiabulls ventures which kind of puts a bad light on the whole Indiabulls group. The stock ran up from 30 to 900 in a year! That would be one reason to avoid the whole group. Have no idea what’s cooking in these stocks.


(manivannan.g) #336

A nice read.
http://www.nooreshtech.co.in/2018/09/smallcap-index-cycles-2005-2018-its-darkest-before-dawn.html


(phreak) #337

RBI to conduct OMO for 36k Cr in Oct. Pretty proactive and this should lower yields on 10Y G-Sec and so should be good for financials and equities too in general.


(Dazzled beginner) #338

Just thinking it out in a simple way…
Does rbi infusing 36000 cr into equities really help…
Today bandhan bank alone went down 20%…
Market cap erosion of around 14000cr…just one company…


(ashish) #339

RBI is not infusing 36000 cr. into equities, it is going to buy government bonds worth that much from open market. Government bond holders are banks and mutual funds which will get liquidity from selling it to RBI. This in effort will create the supply of money to big lenders and softens short term interest rate.