Why Small and Midcap Stocks are Falling?

Small and Midcap Indices are down by 7%-10% in the last 1 week. So why mid cap and small cap are falling? Let’s discuss more on this as we move forward in this blog.

Introduction:

On August 9, the Bombay Stock Exchange (BSE) had issued a circular introducing “a new surveillance framework viz. Add-on Price Band Framework” for securities listed exclusively on the BSE Trading Platform. On Wednesday 11th August 2021, the S&P BSE SmallCap Index has fallen by around 0.83% and around 3% in the last 5 days.

Similarly, why mid cap stocks are falling on the same day while this index was down by around 1.5% in the last 5 days.

Reasons:

New Rules:

• why small and midcaps are falling, there are high activities of the Operators.
• They can manipulate the prices heavily even with the low volumes.
• why mid caps are falling, the Bombay Stock Exchange (BSE) has announced some fresh rules and regulations regarding the Small and Midcap Stocks which has resulted in a fall in the stock prices of the concerned stocks and indices.
• why small cap and mid cap falling, those stocks which have risen 6 times in the last 6 months, 12 times in the last 12 months, 20 times in the last 2 years, and others.
• why midcap and small cap stocks are falling, now they can go up only up to 1.6 times i.e., maximum 60% in the one week, 100% in one month, and 200% in a single quarter.
• The Add-on price band shall be expressed in the terms of the ratio of close price of the stock and depending upon the daily price band slab applicable for the security, why are midcaps and smallcaps falling

Source: BSE Circular

• Here, through these rules and regulations, why are mid cap stocks falling speculation in the concerned stocks from earlier levels.

Conclusion:

The long-term investor should focus primarily on companies with good fundamentals, decent earnings visibility, good growth, and earnings potential, that are not affected by market movements of this nature.