Market volatility prompts traders to turn to small-caps for short-term gains
Some of the small-caps have significantly outperformed broader indices amid low delivery-based volumes, leading to concerns about the quality of trading.
By Vijay Gurav, ET Bureau |
MUMBAI: The uncertainty in the market seems to have prompted traders to target small-, and mid-cap companies to make short-term gains, with a slowdown in momentum in large caps on the bourses. Some of them have significantly outperformed broader indices amid low delivery-based volumes, leading to concerns about the quality of trading. Brokers feel that sharp gains could be misleading if these companies are not fundamentally sound and if the rally is not backed by any positive development or expectations.
"Too much short-term money is flowing into smaller stocks which is not a positive sign," said KR Choksey Shares and Securities managing director Deven Choksey. There has been lack of buying from long-term investors because of which delivery-based volume has declined over the past six months. High trading activity in many stocks has prompted investors to adopt selective approach and to focus on good quality stocks, said Choksey.
Hercules Hoists, a small-cap company, has gained 30% in the current month, with the rally intensifying only in the past few days that, too, amid low delivery-based volumes. The counter attracted average delivery-based volume of as low as 5.5% on the past three days during when the price rose 15% on the BSE. Brokers attributed the gains to market talk that the company was planning to develop its vacant property located in Mulund, a suburb of Mumbai. However, the company officials denied any such plan after which the stock fell 3.2% to 323.8 on Thursday.
TTK Healthcare and Atlas Cycles (Haryana) are the two other notable examples of outperformers among low delivery-volume shares. Recording gains of 58% and 55%, respectively, in the current month, their stocks have seen a sharp decline in deliveries in the past few days. Some brokers feel that low delivery ratio, which is the percentage of shares actually changing hands in relation to total traded quantity, can not be always viewed negatively if a company is fundamentally strong and the rally is triggered by some strong expectations.
"Too much short-term money is flowing into smaller stocks which is not a positive sign," said KR Choksey Shares and Securities managing director Deven Choksey. There has been lack of buying from long-term investors because of which delivery-based volume has declined over the past six months. High trading activity in many stocks has prompted investors to adopt selective approach and to focus on good quality stocks, said Choksey.
Hercules Hoists, a small-cap company, has gained 30% in the current month, with the rally intensifying only in the past few days that, too, amid low delivery-based volumes. The counter attracted average delivery-based volume of as low as 5.5% on the past three days during when the price rose 15% on the BSE. Brokers attributed the gains to market talk that the company was planning to develop its vacant property located in Mulund, a suburb of Mumbai. However, the company officials denied any such plan after which the stock fell 3.2% to 323.8 on Thursday.
TTK Healthcare and Atlas Cycles (Haryana) are the two other notable examples of outperformers among low delivery-volume shares. Recording gains of 58% and 55%, respectively, in the current month, their stocks have seen a sharp decline in deliveries in the past few days. Some brokers feel that low delivery ratio, which is the percentage of shares actually changing hands in relation to total traded quantity, can not be always viewed negatively if a company is fundamentally strong and the rally is triggered by some strong expectations.
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