Sebi probing smallcaps a warning bell for microcaps; time to exit: Analysts

Analysts expect volatility in micro-cap stocks to continue in the near-term. They recommend limiting exposure to the segment

Micro-cap stocks are in the line of fire as market regulator Securities and Exchange Board of India (Sebi) is tightening its noose around investment in small-cap stocks. Given this, analysts suggest investors exit the segment, at least, for the time being.

Independent market analyst, Ambareesh Baliga, for instance, said that regulators have gotten worried on the valuation front, though belated, which could prove to be the last straw on the camel's back.

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"Until recently, corrections in microcaps were seen as a buying opportunity, which proved right as well. But when valuations become super expensive, the safety net is non-existent. It's pertinent to control greed and take profits home or cut losses, if any," he said.

By definition, micro-cap stocks are the ones that are outside the ambit of top 500 companies (in terms of market capitalisation), with their market cap being less than Rs 5,000 crore.

Thus far in the month of March, the Nifty Microcap250 index has declined 7 per cent on the National Stock Exchange (NSE) as against a 1.5 per cent gain in the benchmark Nifty50 index.

Sebi's growing concern  

Over the past one year, micro-cap stocks had a dream run on the bourses. Of the 250 stocks in the Nifty Microcap 250 index, more than 70 stocks zoomed over 100 per cent  (up to 722 per cent) during the period, led by GE T&D, Anand Rathi Wealth, Electrosteel Castings, Inox Wind, and HBL Power Systems.