Local flows follow returns, not the other way around,' they said, adding UBSвЂѓis underweight small- and mid-cap stocks as an asset class in its portfolio positioning recommendation.ДЇrom the record highs posted by BSE mid-cap index and small-cap index respectively on 9 January and 15 January, around three and 85 stocks in the respective indices have eroded at least half of their value.ДЄpart from rich valuations and profit-booking, a host of other factors have been worrying the market, and specifically the mid- and small-cap segment. вЂњThe best of local retail flows supporting SMID outperformance may be behind us, at least cyclically. One basis point is a hundredth of a percentage point. We expect this to remain an overhang our UBS economist forecasts a 50bp (basis points) repo rate hike in FY19,' they added. вЂњSMIDS (small and mid caps) have started underperforming with rising interest rates recently. The rise in interest rates is not counter-cyclical,' UBS Securities India Pvt.

вЂњThe economic growth cycle is less strong now than in historical tightening periods, and this is reflected in earnings cuts. UBSвЂ™s India securities arm also voiced its concerns on the pack, noting investor interest may have peaked for now. вЂњI think it will take a little while (to trough out) and we will not get a V-shaped recovery,' he added. Then what happens is once you get a breakdown in prices, you get a viscous turn in liquidity, and so the liquidity, which I would define as the force on the bids has abated,' said Desai. вЂњSome of this is giving back the stellar returns of last year,' said Ridham Desai, India equity strategist at Morgan Stanley. These stocks have performed especially badly in May as well the three sessions so far in June. The uninspiring show is in sharp contrast to 2017, when the mid-cap and small-cap indices logged 48.13% and 59.64% gains respectively, while the Sensex clocked a more mellow 27.91% gain.

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