Large caps recover faster than penny stocks after crash

History shows that the large caps stage a fast recovery, whereas penny stocks continue to languish in the aftermath of a market crash.

For instance, 884 penny stocks (those trading below their paid-up value and comprising 31.5 per cent of all traded stocks) have not yet seen their highs of May 10, 2006.

The Sensex had scaled a high of 12,612 on that day, before correcting sharply by 3,882 points to close below the 10,000 mark at 9,829 on June 14, 2006.

On the other hand, the Sensex (made up of large caps) recovered 3,682 points over the subsequent four months to scale a new high of 12,736 on October 13, 2006. However, only 52 per cent of the stocks (mostly large caps) recouped and 48 per cent remained laggards.

Although the laggards recovered to an extent in 2007, the 14 Sensex components belonging to the automobile, consumer goods and software sectors are still trading below the highs seen in 2006.

Meanwhile, the 4,000 plus points meltdown in the Sensex over the last eight trading days wiped out market capitalisation worth Rs 18.2 lakh crore (Rs 18.2 trillion). More than 50 per cent of the stocks underperformed in the last eight days, recording a decline of over 24.7 per cent compared with a market-wide fall of 24.6 per cent.

Among the group losers, the large cap dominated A group stocks declined 18.8 per cent, the fundamentally strong B1-group weakened by 20 per cent and the small cap B2 and S-group shed over 22 per cent.

The trade-to-trade segment outperformed the markets by posting a 17.6 per cent fall. The major losers were mid-cap stocks, down 26.3 per cent and small cap down 25 per cent.

Incidentally, the first major correction in the last seven years was seen between February 15 and September 21, 2001 when the Sensex declined by almost 2,000 points or 41.4 per cent from 4,438 to 2,600. A recovery took almost two years and the Sensex rolled back to touch 4,434 on September 8, 2003.

The Sensex declined by over 1,700 points between January 14, 2004 and May 17, 2004, when the NDA government lost power.

The Sensex declined from 6,194 on January 14, 2004 to 4,505 on May 17, 2007, including the single-day fall of over 850 points on May 17, 2004. The recovery was again slow. After six months of trading, it crossed 6,100 to close at 6,234 on November 30, 2004.

The two major 2,000-points fall in the Sensex occurred in calendar year 2007 (between February 8 and March 5, and from July 26 to October 21). The Sensex declined by 2,200 points between February 8 and March 5, 2007. However, it recovered within four months to close at 14,650 on June 29, 2007.

The sweetest recovery on the BSE Sensex was seen between August 21 and September 18, 2007, when it recovered the 1,800 points loss suffered in 17 trading days between July 26 and August 21, 2007.