Large drop in small, mid-cap stocks after Kotak report

MUMBAI: A day after domestic brokerage firm Kotak Institutional Equities shook up the market by withdrawing its recommendations for mid- and small-cap stocks, Dalal Street investors panicked and pressed the sell button. As a result, BSE's small-cap index closed 4% down while the mid-cap index lost 3% on Tuesday.
The selloff in these stocks came amid sporadic buying in large-cap stocks, which helped the sensex close a marginal 94 points up at 67,221 points. BSE data showed 14 out of 30 sensex stocks closed higher. which helped the index close higher for the seventh consecutive session.
The heavy selling in non-blue chip stocks also skewed the advance-decline ratio on the BSE that showed for every stock that closed higher, more than four stocks closed lower. Investors were left poorer by Rs 4.8 lakh crore with BSE's market capitalisation now at Rs 322 lakh crore, official data showed. During Tuesday's session, selling in mid- and small-cap stocks picked up pace in the late session on the back of rumours that several of the mutual funds were also offloading these stocks to take some profits home.

On Monday, the Kotak Institutional report said it saw no fundamental reasons for several of these stocks to rally the way they had in past few months. There are indications that 'irrational exuberance' has set in several of these stocks, increasing risks of holding them in portfolio. Irrational exuberance is a term that was popularised by former US Fed chairman Alan Greenspan in 1996, to indicate a situation in stock market when prices are so high that it can't be justified by looking at fundamentals.

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