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Our Bureau

Kolkata, April 8 A sudden surge in mid- and small-cap stocks on Wednesday may have caught traders on the wrong foot and left market observers divided on its significance, but it showed clear break in risk aversion.

As many as 554 stocks, or every fifth stock that was traded on the BSE, hit the upper circuit. Among them, 387 B-group stocks and 86 S-group stocks hit the upper circuit.

According to Mr Gul Teckchandani, a market strategist: “Valuations are cheap for the mid- and small-cap stocks; available at 1 or 2 historic P/Es. Growth going forward is likely to be better than what was expected a month ago. Risk aversion is significantly reduced now.”

A left-out feeling and a desperate gambit by some non-institutional domestic players were behind the surge in mid- and small-cap stocks, said Mr Arun Kejriwal of KRIS. “As participation of institutions is relatively low in mid- and small-cap stocks, operators found it easy to prop them up than the heavyweights.”

Mr Amitabh Chakraborty, President Equity, Religare Capital Markets, however, said there was genuine buying in the stocks on Wednesday. “There is a clear indication of overseas fund inflow, including that of dollar carry trade flow.”

Mr Sourabh Mukherjea, head of Indian equities at Noble, which have major overseas investors as their clients, said the 100 stocks just below the top 50 have the best combination of cash flow and balance sheet strength. FIIs in the past four weeks have been buying these stocks. “They are avoiding export-led companies, but entering pure domestic plays.”

According to dealers, apart from relative out-performance and a sharp improvement in turnover, the mid- and small-cap space saw a spate of circuit hits.

While the Sensex was up 1.97 per cent, BSE Small-Cap finished up 4.47 per cent and the BSE Mid-Cap finished up 3.11 per cent.

However, in the past month Sensex improved by 29.02, higher than BSE Mid-Cap and Small-Cap indices, which gained 27.70 per cent and 27.28 per cent, respectively.

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