BSE SmallCap Index: These Beaten Down Smallcaps have slipped up to 30 per cent in one month alone!

Markets are trading at life highs with IT stocks, capital goods stocks, energy stocks, and private banks trading positively this week and outperforming. While Sensex and Nifty are at record highs and several large-cap IT stocks are trading at record highs, the underperformance of the BSE SmallCap Index is visible. There are a few small-caps that have gained at price in the past 5 trading sessions, however, we find several small-cap stocks slipping deep into the red in the past month.

Technically it is suggested that when the market (index) or any individual stock corrects by more than 20 percent it enters into bear territory. However, it is also important to note that the stock prices should remain subdued for a long time maybe for a couple of months at least to conclude that a particular stock has entered into a bear market phase.

One can cross-check if a stock has turned bearish by looking at technical indicators and moving average data. For example, on daily charts, HFCL is trading below 20D EMA thus indicating some weakness however the stock is trading close to its 50D EMA and may take support from the 50D EMA levels. 

One may closely look at the stocks that have fallen sharply or by more than 20 percent from recent highs and study the technicals to understand whether the stocks have entered a bear phase. On the positive side, long-term investors may find stocks that have fallen sharply attractive and hunt for bargains.  

These beaten-down stocks could be less attractive for momentum traders however value investors may start searching for value in them! Looking at the positive market condition right now and underperformance in small caps, traders and investors should show caution in the stocks that are showing weakness.

Following stocks that are constituents of the BSE SmallCap index have corrected sharply  (~20 percent) in the past month after more than doubling in past one year: