Small-caps, mid-caps in troubled waters

Small-cap and mid-cap shares declined for the second day in a row today.

Some major losers in this space were Aptech (down 11% to Rs 187), Entertainment Network India (down 10.9% to Rs 306), Peninsula Land (down 9.5% to Rs 415.80), Unitech (down 8% to Rs 429.80), Spanco Telesystems (down 9% to Rs 186), Max India (down 7% to Rs 1101), Mahindra Gesco Developers (down 8% to Rs 591.80), Adani Enterprises (down 7.9% to Rs 208), Srei Infrastructure Finance (down 7.5% to Rs 61), Suzlon Energy (down 7% to Rs 1149), Jyoti Structures (down 6% to Rs 159), India Infoline (down 7% to Rs 332.90), and Escorts (down 6.7% to Rs 131).

The market-breadth was quite. For 2006 shares declining on BSE, 263 rose. Just 24 shares were unchanged. Losers outpaced gainers by a ratio of 7.6:1.

The CNX Nifty Junior Index, which comprises small-cap and mid-cap shares, was down 207.20 points (2.8%), at 7,138.95. It has lost 368.40 points (4.9%) in the past two trading sessions from 7,507.35 on 8 February 2007.

A surge in inflation to its highest level in more than two years, which has raised concerns of a further rise in interest rates, has damaged small-cap and mid-cap shares in the last two days.

There was a solid recovery by small-cap and mid-cap shares since mid-December 2006. From a low of 6,931.25 on 10 January 2007, the CNX Nifty Junior Index surged 578.50 points (8.3%) in about a month, to 7,509.75 by 7 February 2007.

Nifty Junior currently trades at a PE multiple of 20.24 (based on its closing of 7507.35 on 8 February 2007) compared to Nifty’s PE multiple of 20.31.