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Of Fall in SmallCap Stocks, Rupee Breaching 69 Mark and Top Stocks in Action Today
Fri, 29 Jun Pre-Open | Parth Parekh, TM Team

The carnage in the BSE Smallcap Index continued as the index fell by 1.5% yesterday. After posting rocket gains of 58% in calendar year 2017, the index is down 18.2% since the beginning of 2018.

While corporate earnings remained depressed on account of disruptions by demonetization and goods and service tax, the sharp rally in 2017 was driven purely by expansion in the price/earnings (PE) multiples.

Rallies driven by PE expansion are not sustainable. And this is being witnessed in the recent correction. Expensive valuations coupled with unimpressive increase in corporate earnings has led to the hefty correction.

The data analysis by a reputed organization of 1,584 stocks having a market capitalization of more than Rs 100 crore, showed that the median fall for these 1,584 stocks from their 52 week high is 34%. The magnitude of the correction is eye-popping.

After two years of depressed earnings, hopes of a trend reversal are high. If the recovery in earnings does not happen as expected, there could be further pain in the offering.

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Rupee Breaching 69 Mark

The rupee breached the 69/ dollar mark on concerns over rising crude prices and a widening current account deficit.

The depreciation may continue given the fact that India has to repay a huge sum of external debt in the coming years. India's external debt stands at US$ 513 billion and almost half of the same has to be repaid in the next year. Our foreign exchange reserves are not sufficient to repay the debt and this may put pressure on the rupee. Further, a rise in the bond yields in the US may also led to the strengthening of the dollar against the rupee.

As most of the IT services are exported, a depreciation in rupee bodes down well for the financials of IT companies. Further, a rupee depreciation may also be beneficial for the pharmaceutical industry.

Top Stocks in Action Today

The stocks of Exide Industries, Gitanjali Gems, Alok Industries, Balmer Lawrie & company, Indian Bank, Lakshmi Vilas Bank, Lupin are expected to be in the news today.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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