Mid, small-cap companies battered :: Business Line

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In the market fall of the past year, large-cap stocks have been treated with a lighter hand while mid-cap and small-cap stocks have had a bruising fall between December this year and last. Of the stocks trading at valuations superior to the broader market, large-caps feature far more prominently than either small-cap or mid-cap stocks.

LARGE-CAPS STRONG

The proportion of large-caps in those stocks trading at higher-than-market valuations is much higher this December. Broader market valuations currently stand at 16.8 times trailing earnings. In the BSE 500 basket, 151 stocks trade at valuations superior to the broader market. Of these, four in every ten were large-cap stocks. This proportion is higher than the figure last December, when less than three in every ten stocks belonged to the large-cap space. Broader market valuations then stood at 20.7 times.

However, this inching up is a result of mid- and small-cap stocks being whittled down rather than improvement in the actual number of large-cap stocks that have been pegged up.

Within the large-cap basket, half the stocks are at higher-than-market valuations. For instance, Hindustan Unilever and Exide Industries, currently trading at superior PE multiples of 37.6 times and 20 times, respectively, were already accorded higher valuations. Only a handful of stocks moved to significantly higher PEs, such as Hero Motocorp. The stock went from a lower-than-market valuation of 17 times last December to a superior 19 times now.

BEATEN DOWN

While mid-cap stocks have had a hard time, the small-cap stocks have had the most bruising run. The proportion of small-cap stocks with better valuations fell to three in ten this December, compared with four in every ten last December.

Madhucon Projects, for example, fell sharply from a PE multiple of 24 times last December to just 9 times now, with its stock price plummeting 57 per cent in that time. Similarly, OnMobile Global dropped to 8 times trailing earnings from the 26 times it traded at last year.

In the mid-cap space too, several stocks that had been accorded high valuations previously fell sharply in this bear run. Within the mid-cap basket, the number of highly valued stocks dropped from 60 per cent in December '10 to just 30 per cent now. For instance, Piramal Healthcare had higher-than-market PE multiple of 27 times in December last year. The stock now trades at a 15 times earnings, much lower than the broader market.