A Brief summary of the Micro/Small/Midcap Carnage

The party got over sometime ago and things have gotten pretty weird. The liquidity driven rally post demonetisation in micro/small/midcaps is ending in a pretty dramatic fashion. Lot of reasons were being given for things going up last year from liquidity, momentum, phenomenal earnings growth (in the P/L at least) etc. Experts came on TV channels and gave buy calls by the dozen and everyone ended up looking like Nostradamus.

Now onto the weirdness. The reasons for the carnage again are many and varied - to paraphrase Tolstoy - Happy families are all alike but unhappy families are unhappy in their own way. Here are some of the reasons offered

  1. LTCG
  2. Mutual Funds rejig due to reclassification
  3. Liquidity!
  4. Crude/Rupee/Interest rates
  5. CFOs/Auditors resigning
  6. Cyclicals peaking
  7. Cooked books
  8. Overvalued IPOs
  9. Loss of momentum
  10. Bad corporate governance
  11. Karnataka Elections
  12. Banking scams
  13. Margin triggers due to ASM/GSM have brought other stocks down as traders sell other holdings to put up margin money (New reason updated as of 5th June, 2018)

This is how it has unravelled.

Probable Fraud

Vakrangee - The undisputed leader of the pack

PC Jeweller - Partner in crime?

Fiberweb - This reeked a fair bit long before it unravelled. The fiberweb thread is a must visit


Demergers and so-called value-unlocking

Lasa/OSCL - Hype and possibly seeded conversations. Enough rationale posted in the thread. Things could have turned up for the better at least somewhat had the last quarter numbers not been what it were. That changes everything. This was just an outright con.

Sintex Plastics - Looked way overvalued even at 80 levels in comparison with Nilkamal

Overvalued IPOs

Silly Monks - Was very, very expensive at 150 levels.

Vadivaarhe - The promoter definitely knew he lost a key customer when he went for the IPO. Oh well!

Advanced Enzymes - One of the earliest overvalued IPOs in the list. I liked this company but could never get past the valuations.

Apex - Right on time to cash in on liquidity and marine products exports peaking

Momentum stocks without momentum (aka Emperor has no clothes)

Rain - Down 50% almost

BEPL - Seeing this above 200 was strange

HSCL - This was expensive from the time it crossed 100-120 levels. Went all the way close to 200

Delta Corp

Just plain pump-and-dump

Ujaas Energy - Promoter cashed in nicely at 40 levels. Valuable lesson learned early.

Hind Copper - This had no business riding to 100. Whoever planted media stories of Copper and EV demand and so on was a genius.

MRSS - Never understood this company. The dispatches in January were a clear red flag.

SKM Egg - Lot of reasons given from this turning into FMCG play and so on. Nothing in the numbers to substantiate and the overhang of the related-party promoter entity is yet to be clarified.

Sanwaria - Bizarre dispatches. Results within couple of days of quarters’ ending and shareholding pattern a whole two months later. This had everything.

Cyclicals ending badly


DCM Shriram (and every other Sugar stock)

Avanti Feeds/Waterbase

CFO/Auditors resigning




8k Miles
Vikas Ecotech
Suzlon/Inox Wind

I have owned and exited some of these stocks with profits, thanks to trailing stops and some research (Avanti, DCM Shriram, Delta Corp, HSCL, BEPL). Some at a loss due to stop-loss (Ujaas Energy, Suzlon Energy), Some I still hold at a loss (Hind Copper) and some I have bought/buying in SIP post the fall because of attractive valuations (Advanced Enzymes, Inox Wind). I am not trying to paint all these stocks with a broad brush (as fraud or overvalued etc.) but it has been interesting observing what’s transpiring and I think there are big lessons to be learnt to not buy into euphoria as the hangover can be very, very bad. Micro/Small/Midcaps can be great wealth creators but it cuts both ways so it is very important to learn how not to lose money as well.

These are from the stocks I have followed closely. Do add more if I have missed any.


Intelligent set of reasons for fall and good samples. If I may add.


  1. Sterlite Technologies.
  2. Shankara buildcon
  3. V-Guard

The ones that come to my mind are Arihant Capital Markets and Emkay Global. Just 4 months ago, financial services stocks were touted to be the future growth engines. Their growth could be attributed to the deluge of monthly inflows. Today, both these stocks are down a mind numbing 60% from their peak. And, this isn’t even a bear market yet.

  • Sintex plastics can be added under value unlocking aka demerger.
  • Indo count industries, Nandan denim under cyclical
  • Ajanta pharma under misc
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Good compilation of wealth destroyers.

A big surprise for me was manpasand where motilal had a pretty detailed coverage on the stock early on since listing.

I had been lucky with dcm shriram. Got punished with hcl info.

Telltale signs are often visible

Too much media hype and promoter appearance on tv/media.

Commodity businesses misunderstood as great companies


Frequent dilutions

Frequent thoughtless capex at peak of cycle

Shady promoters promising a lot.

Its very difficult to avoid these companies by the novice investors but seasoned investors often have a sixth sense which alerts them against these companies.

If one wants to follow good investors its better to first check their track record and credibility and then see what they are doing. Some names that immediately come to mind which are attached to good sensible long term investing are akash prakash, sumeet nagar, prof bakshi, kenneth andrade, etc. Even these illustrious names would have their duds bit they make the most of their winners which takes care of all the damage caused by their duds.


Gitanjali Gems turned out to be a big scam, where promoter fled from the country and left the investors stranded. Kwality showed us how businesses can collapse due to poor working capital management. I was lucky to exit gitanjali at the right time (small position), but not so lucky in Kwality (sold at a loss).



RCI Industries, Butterfly Gandhimathi, AllCargo are the ones which I am still holding with in access of 30% loss of value.

You can add textile companies to the list. The likes of trident, RSWM, nitin spinners, Nandan denim, caplin point labs and LEEL etc.

The Q4 results of Vikas Ecotech is a must see…had to exit with loss.

Avanti currently at 30% loss but still holding on…“Hope” too can be a double edged sword

Avanti is a good business but it is a cyclical one and people started it giving it a valuation of an FMCG biz. It was a problem of euphoria not the business itself. :slight_smile:


So, in this carnage which might get extended as investor panic more, is it safe to park money in large caps for some time. Something like a TCS or M&M which might not fall much and offer decent returns by Year end?

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A wonderful post, @phreakv6

Towards the end of last year, I’d written answers on Quora about Waterbase and Avanti, stating that:

  1. They are clearly riding on the discovery of the Vannameni.
  2. That shrimp is luxury food, with no aspirational quality.
  3. The companies had cash piling up, but their promises of redeploying them were generic.

So, all of this indicated that they were clearly one-hit wonders. However, everyone seemed think that somehow shrimp exports will become a major industry (Unfortunately backed by the government’s statements too).

It’s very easy to lose your composure and give into the hype of the market. Warren Buffet couldn’t have been more right when he said “…it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be O.K.


Fundamentals and long term growth story of shrimp industry still remain intact. Shrimp prices internationally were depressed due to long winter in USA. Shrimp prices have started rising again. Avanti has majority of its revenues from feed business. The volumes of that division are still expected to post growth compared to last year. This is because the famers are still continuing to carry on shrimp farming inspite of the the temporary problems in the industry. Even china was facing some regualory problems which has been resolved , hence improving the exports to China of Indian shrimps.
Now the thing with Avanti was it had super high EBITDA margins due to depressed RM prices (soya and fish meal) in FY18. But with RM prices coming back to normal, the profits might show a significant degrowth with respect to last year.
The reason for the steep fall in share price was nothing but over valuations. Irrational valuations !

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Hi Dinesh

It would be interesting if you look at the reports of Gorjan Nikolik of Rabobank to get a view on the global aquaculture industry. Specifically the shrimp global market. Your post on Quora is a cursory glance at Avanti.


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Warren Buffet classifies businesses into largely two types: commodity and franchise. To put it simply, commodity businesses are businesses that sell products that are wanted by their customers and franchises sell products that are needed by their customers. More on this here:

So, the question I’m asking is “Are shrimps wanted or needed by the end consumers?” and I’m sure you know what I think is the answer.

Of course, this doesn’t automatically mean that commodity businesses are trash. As per Warren Buffet’s own admission, being the lowest cost producer is the only quality to have in order to gain an edge in the commodity business. I honestly don’t see this happening with Avanti or Waterbase.

Here’s how Shrimp Prices looked like for the past 10 years:

Please help me understand how Shrimps are a franchise kind of business or how Avanti/Waterbase are a commodity kind of business with substantial cost economics. I’m all ears.


@dineshssairam - I still think the aquaculture industry, and Avanti in particular is a bit different from the other commodity/cyclical businesses. It is substantially different from a metal commodity cycle for example and the cyclicality as well is more prolonged - maybe something like automotive industry which has almost 8-10 year cycles which means there is substantial amount of money to be made in the prolonged boom of the cycle. Avanti’s cycle is currently in its 9th year.

Avanti went through extreme overvaluation going by the phenomenal growth they had shown which is normal for any business the market fancies. This sort of thing has happened in the past in FY15 as well when the stock fell 50% just like this time but when demand recovered the next year, there was more returns to be had. The same might be the case even now but the market is bound to be very cautious this time.

Maybe Avanti is not the kind of business WB would invest in but being open to play commodity cycles, asset plays, turnarounds, tech companies (all of which WB wouldn’t touch) for shorter time periods with a firm hand on the pulse of the market to figure out why things are valued the way they are could help us mere mortals generate alpha (when risk is low that is. When risk climbs, its time to bail).

So no one is claiming this business is a franchise kind of business but as of now, it is one that has a geographical and low-cost advantage and will continue to do so for sometime. As a business I do believe aquaculture will continue to do well but may not be investible for phenomenal returns without substantial risk. As for Avanti, they seem to have a bit of pricing power to survive downturns where they are able to pass on raw-material price increases and enjoy raw-material price drops. However, it is easier to do well when overall market conditions are rosy than when they are not.

Disc: I have no holdings in Avanti


Avanti remains a good business but at a reasonable valuations. As mentioned in above posts, its a good but not a great business and thats what a lot of investors failed to comprehend.

Avanti quoting at valuations of 30 plus were anyway difficult to sustain. Once the earnings start faltering companies like avanti are never given a long rope which is usually given to high quality companies like fmcg and consumer durables which dont collapse even if one or two or even three quarters are lacklustre.

Its very important for investors to remember the swing of the pendulum. When in full swing it doesnt stop halfway. It swings from over pessimism to over optimism and again back to over pessimism and so on and on. So while hunting for buying companies like avanti its better to wait patiently for pessimism brought on by bad news for the company and or the sector.


Not to be a harbinger of worry…

Most of the the large caps are now trading at absolutely ridiculous valuations. In fact most are even above the valuations they had in 2008.

They are next in line for a deep deep cut as those valuations cannot sustain. I am referring to the bluest of blue chips. Money is now flowing into them as it was into small and mid caps last year.

When then happens is when the real “carnage” will happen in the small mid and micro caps. This is just a trailer in these small caps. Picture abhi baaki hai. Calling 30-40 percent portfolio drops as carnage is for those who have not seen carnage.

Nothing has happened yet.


It is when this forum would not have many new threads for companies below 1 Billion in market cap. Basically complete investor apathy to even looking at small caps.

What fall in percentage terms typically leads to such indifference to micro and small caps? Please excuse my juvenile questions.