Why Small and Midcap Stocks are Falling?

2 min read
Small and Midcap Indices are down by 7%-10% in the last 1 week. So What are the reasons behind this fall in the Small and Midcap Stocks? 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, the S&P BSE Midcap Index was down by 0.22% on the same day while this index was down by around 1.5% in the last 5 days.

Reasons:

New Rules:

  • In some small and midcap stocks, there are high activities of the Operators.
  • They can manipulate the prices heavily even with the low volumes.
  • To curb this manipulation, 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.
  • As per new rules and regulations of the BSE, 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.
  • Those stocks which will be in circuit limit of 20%, 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, there will be different ratios of add-on price bands.

Source: BSE Circular

  • Here, through these rules and regulations, the BSE is trying to lower down the speculation in the concerned stocks from earlier levels.

Conclusion:

As a long-term investor, one should highly focus on companies with good fundamentals, decent earning visibility, good growth, and earnings potential, and is not affected by such movements in the market

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