BCL Industries, JK Tyre, and others: Smallcap stocks sink up to 17% on concerns of tighter SEBI norms

Smallcap stocks were under pressure on March 11 intra-day deals as BCL Industries, JK Tyre, Tata Chemicals, JM Financial, and IIFL Finance tumbled up to 17 percent on the BSE amid concerns of tighter SEBI norms. In comparison, the BSE Smallcap index declined as much as 1.6 percent.

So far this year, the BSE Smallcap index has gained only 2 percent, while the BSE Midcap index surged 8 percent. Benchmark Sensex, meanwhile, rose 0.9 percent during the same period.

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Market regulator SEBI wants mutual funds (MFs) to protect investors from  ‘froth’ in the mid, smallcap space. This means that the market regulator wants to ensure sufficient liquidity is present in case there is a market downtrend and sudden outflows from these funds start.

Following this, the Association of Mutual Funds in India (AMFI) asked fund houses to conduct stress test on their mid, smallcap schemes based on previous month data and disclose findings before March 15.

AMFI has also asked fund houses and managers to take appropriate and proactive measures to protect investors with measures like moderating inflows and portfolio rebalancing.

ALSO READ: AMFI writes to fund houses citing SEBI directive on froth in mid and smallcaps

Analysts believe that the underperformance of smallcaps is likely to continue in the near-term. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said that more follow up actions are likely from the regulator, which would prevent bubble formation in the broader market and its inevitable burst.

“Since restraint imposed by some mutual funds by stopping lump sum investment into their small cap schemes has failed to stem the flow of funds into the over valued small -cap segment, SEBI has stepped in with regulatory action asking the mutual funds to do stress tests in their mid and small cap schemes,” he noted.

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