Brokers ask clients to cut leverage as selloff deepens
economictimes.indiatimes.comselloff in mid-cap and small-cap stocks has intensified of late as brokers are asking clients to liquidate their leveraged bets in the space in the wake of the Securities and Exchange Board of India's warning of froth in these shares. The recent crackdown on Dubai-based hawala operator Hari Shankar Tibrewala by the Enforcement Directorate (ED) for stock manipulation has also triggered panic among market operators, who are said to be cutting their positions, said brokers.
As many as 70 stocks with more than ₹1,000 crore in market capitalisation have declined between 15% and 50% in the last five trading sessions while another 250 stocks have dropped 10-15% during this period.
BSE Midcap index fell 2% in the five trading sessions, BSE Smallcap index declined nearly 5.9% and the Microcap 250 index dropped 7%. The Sensex was up 0.3%.
Analysts said the capital market regulator's heightened scrutiny of smaller shares amid concerns that they are overheated after the run-up in the past year has been a trigger for the selloff in them.
On smallcap and midcap stocks, Sebi chairperson, Madhabi Puri Buch told reporters on Monday, «Some people call it a bubble, some may call it froth,» Buch told reporters in Mumbai. «It may not be appropriate to allow that froth to keep building.»
Brokers said the comments have prompted them to ask clients to cut their stock positions built on loans, especially ahead of the financial year end on March 31. Investors too are reshuffling their portfolios as part of adjustments for tax purposes.
