Smallcap stocks spring back to life as if nothing happened. Are retail investors right?

economictimes.indiatimes.com:

Texmaco, Railtel, IRFC, RITES, and IRCON jumped 9-10% each while PSU bank stocks — UCO Bank, Central Bank, Punjab & Sind Bank — also rallied 9-10% each.

Some of the biggest gainers in the small and midcap space were BLS International, ITI, SJVN, and Swan Energy with upsides between 10-20% each. Adani stocks, which were among the worst affected in yesterday's sell-off, also rallied up to 9%.

Small and midcap stocks have been under pressure ever since Sebi started flagging the issue about the possibility of froth building in the broader market amid non-stop buying by retail investors.

«There are pockets of froth in the market. Some people call it a bubble, some may call it froth. It may not be appropriate to allow that froth to keep building,» Sebi chairperson Madhabi Puri Buch said while comparing valuations with irrational exuberance.

Sebi and the AMFI (Association of Mutual Funds in India) have directed mutual funds to provide additional disclosures for small- and mid-cap funds from this month.

While only time will tell whether today's buying is the case of a dead cat bounce rally, the price action indicates that investors are finding enough value after the dip.

Also read | Little stocks in big trouble! 374 smallcaps fall at least 30% from peak. Worst ahead?

Prateek Agarwal of Motilal Oswal Mutual Fund said it is a godsend for people who were hoping for a correction to happen.

«Over the last couple of days, stocks have been knocked down 10% minimum and more, so a lot of that fluff is definitely out. But