While the Nifty Midcap 150 and the Nifty Smallcap 250 indices corrected 3.9% and 5.5% each from their peaks earlier this month, stocks constituting these indices have fallen far more. Smallcaps like Amber Enterprises, Ircon and SJVN have fallen 20-37% from their peaks, while midcaps like Kajaria Ceramics, Rail Vikas Nigam Ltd (RVNL) and NHPC have plunged 20-26% from their highs.

The correction in these stocks comes after a prolific run with markets discounting the re-rated prospects of some stocks ahead of their value. For instance, construction major Ircon surged almost sixfold from a low of ₹50.10 on 27 February last year to a high of ₹280.85 on 23 January, before shedding 25% from that level.

Similarly, RVNL rose over six times from a low of 56.05 on 1 March last year to ₹345.50 on 23 January this year, before profit booking hit the counter. Another stock, which has been the darling of the Street, Indian Renewable Energy Development Agency (Ireda) fell 24.5% from its high of 214.80 only last week to ₹162.15 on 13 February.

The stock rose fourfold from a listing price of ₹50 on 29 November to its high on 6 February.

“Some of these stocks, especially the government run ones, have been re-rated and have surged because of demand as the government is using these companies to execute its projects,” said A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC. “Surely, given the phenomenal run up in the mids and small cap stocks, expectations of returns will have to moderate from here and the earnings and order execution will be tracked closely.”

Balasubramanian explained that while mutual funds had been “very selective” in stock picking in the smids space, scouting for “quality,” high networth individuals (HNIs), using alternate investment funds and portfolio management service (PMS) funds, were chasing momentum, causing some of the counters to run up ahead of their value .