O rali das small caps

This week's rally saw 18 stocks rise by over 20% in three sessions, with 17 of them being part of the small caps index, except for Localiza which surged 20.5%. Only seven stocks are part of the Ibovespa index with reduced weights. After a 7.7% rise on Monday, the Ibovespa fell 1.3% in the following two sessions. The market has been operating higher by 0.6% around 11am on a complicated day abroad, with oil prices rising and other stock markets falling.

Small caps index rose 12% between Monday and Thursday, and will climb another 1% today. "Many watch the Ibovespa and believe the movement on Monday stopped in the following days, but that's not what we saw in the rest of the market," said Fernando Ferreira, chief strategist at XP. Typically, rallies begin with large caps rising first, followed by smaller companies with less liquidity and higher volatility.

However, this time, the market is being driven by the possibility of a larger Selic rate cut than previously forecast. Lower rates benefit domestic-focused companies sensitive to interest rates, many of which are small caps. The realization of this scenario depends on credible fiscal adjustments, but many managers are anticipating the trade and buying stocks that have been idle for years.

In the last three sessions, the stocks that rose the most were Quero-Quero (+47%), Movida (+33%), Ecorodovias (+31%), Pague Menos (+31%), Simpar (+28%), Vamos (+27%) and Grupo SBF (+26%), according to a survey by Elos Ayta consulting firm. The flow into small caps is coming from all sides, summarized a manager, but mainly from local funds reinvesting cash, rotating out of large caps and receiving some outside resources.

"This movement has a ceiling because it depends on how much the manager can move the portfolio," said Ferreira. Foreign investors also bought domestic-oriented company stocks in recent days but in limited amounts due to low liquidity in these shares. Foreigners entered B3 on Monday with the external flow reaching a record R$10 billion for a day, buying mainly the most traded stocks through indexes, pushing the Ibovespa up 7.7%.

The next day, the flow dropped to R$1 billion. "The foreigner said he wouldn't do anything until the election results, but he did everything he wanted the first day after the first turn. He bought aimlessly, and others took advantage to sell what was already expensive," said another manager. On Monday, stocks already at historic highs outperformed the index, such as BTG Pactual (+23%), B3 (+22%) and Itaú (+10%).

Since then, they have returned part of the gains. Among the stocks that fell this week were those of commodity and export companies affected by a stronger currency, such as Embraer (-9%), Suzano (-5%) and Vale (-5%).