Shakeout in Indian small-caps seen luring dip buyers to market
investors despite the securities regulator’s warnings of a potential bubble.
Perceived as key beneficiaries of the South Asian nation’s 8%-plus economic growth, shares of smaller firms are seen staging a comeback after a selloff that’s pushed down the Nifty Smallcap 250 Index almost 10% since Feb. 27. That was the day the Securities and Exchange Board of India directed mutual funds to take steps to shield investors from the speculative froth in small- and mid-cap stocks.
The rout follows a stellar run that saw the small-cap gauge add over $230 billion in value since March last year, driven by robust earnings and relentless flows from India’s army of retail investors. While valuations are still rich, buyers with a sense of history say episodes of tumult like the current one are common in a bull market and tend to spur a shift to quality.
“It is without doubt an opportunity to purchase high-quality, well-managed companies at more attractive prices,” said Mike Sell, head of global emerging equities at UK-based Alquity Investment Management Ltd. “Nothing fundamentally has changed, while recent corporate commentary paints a stronger picture than is perhaps widely appreciated.”
Morgan Stanley earlier this week said that India’s current economic expansion resembles the boom period of the mid-2000s, when growth averaged more than 8%. During that era, a small-cap index managed by the BSE Ltd. skyrocketed over 1,200% — an ascent that saw several bouts of shortlived corrections.
The National Stock Exchange’s small-cap
