Indian equities took a hit as concerns raised by the securities regulator about froth sent smaller stocks to their worst single-day drop in more than two years.
The gauges of small and mid-cap stocks plunged more than 4% each, while the main S&P BSE Sensex Index tumbled 1.2% to erase this month’s gain. The declines were widespread, engulfing almost all of the 1,139 members of the S&P BSE AllCap Index.
“Low-float stocks are creating some form of froth in the market,” Nilesh Shah, managing director at Kotak Asset Management Ltd., said at an industry event in Mumbai. The regulator “should do more to put guard rails around mid-and small-cap plans,” he said.
The S&P BSE Small Cap Index has lost more than $40 billion in market value in less than two weeks after the regulator flagged risks of overheating in shares of smaller companies. About 15% of the index’s 946 members have erased a fifth or more of their value during this period. Some investors anticipate the losses to deepen.
“This space was too hot and the correction may not be completed in a hurry,” said Porinju Veliyath, founder and portfolio manager at Equity Intelligence Pvt. Ltd. “There is still a lot of froth in many pockets,” he said, adding that the slump may provide investors an entry point into quality stocks.
‘Price manipulation’
The Securities and Exchange Board of India has been concerned about large flows into small- and mid-cap stocks amid an outsized rally in the riskiest pocket of the nation’s $4.5 trillion market over the past year.
“It may not be appropriate to allow bubbles to keep building because when they bursts, they impact investors adversely,” Chairwoman Madhabi Puri Buch said earlier this week. Sebi is open to allowing money managers to hold more large-cap stocks in their small-cap portfolio to manage risk, she said.
Buch further said the regulator has observed “patterns of price manipulation” in new listings taking place on platforms for tiny companies.
S&P BSE SME IPO Index, a gauge of small and midsize enterprises, has slumped 15% this month, while an index of mainboard IPOs has dropped more than 11%.
In light of the regulator’s remarks, ICICI Prudential Asset Management Co Tuesday said it temporarily halted lump-sum deposits in its mid and small-cap funds starting March 14. Last month, Kotak Asset imposed limits on flows on recurring plans in its small-cap fund, citing the sharp surge in this segment that has led to “valuation distortions” in some cases.
The gauges of small and mid-cap stocks plunged more than 4% each, while the main S&P BSE Sensex Index tumbled 1.2% to erase this month’s gain. The declines were widespread, engulfing almost all of the 1,139 members of the S&P BSE AllCap Index.
“Low-float stocks are creating some form of froth in the market,” Nilesh Shah, managing director at Kotak Asset Management Ltd., said at an industry event in Mumbai. The regulator “should do more to put guard rails around mid-and small-cap plans,” he said.
The S&P BSE Small Cap Index has lost more than $40 billion in market value in less than two weeks after the regulator flagged risks of overheating in shares of smaller companies. About 15% of the index’s 946 members have erased a fifth or more of their value during this period. Some investors anticipate the losses to deepen.
“This space was too hot and the correction may not be completed in a hurry,” said Porinju Veliyath, founder and portfolio manager at Equity Intelligence Pvt. Ltd. “There is still a lot of froth in many pockets,” he said, adding that the slump may provide investors an entry point into quality stocks.
‘Price manipulation’
The Securities and Exchange Board of India has been concerned about large flows into small- and mid-cap stocks amid an outsized rally in the riskiest pocket of the nation’s $4.5 trillion market over the past year.
“It may not be appropriate to allow bubbles to keep building because when they bursts, they impact investors adversely,” Chairwoman Madhabi Puri Buch said earlier this week. Sebi is open to allowing money managers to hold more large-cap stocks in their small-cap portfolio to manage risk, she said.
Buch further said the regulator has observed “patterns of price manipulation” in new listings taking place on platforms for tiny companies.
S&P BSE SME IPO Index, a gauge of small and midsize enterprises, has slumped 15% this month, while an index of mainboard IPOs has dropped more than 11%.
In light of the regulator’s remarks, ICICI Prudential Asset Management Co Tuesday said it temporarily halted lump-sum deposits in its mid and small-cap funds starting March 14. Last month, Kotak Asset imposed limits on flows on recurring plans in its small-cap fund, citing the sharp surge in this segment that has led to “valuation distortions” in some cases.
