The stock market has experienced significant volatility in recent weeks, with the small and midcap indices tumbling up to 3.5 percent on Tuesday amid a relentless sell-off. Investors continued to offload shares due to concerns over high valuations, weak corporate earnings, and global trade uncertainty. The Nifty Midcap 100 and Nifty Smallcap 100 indices have declined yearly by 11.29 percent and 14.6 percent, respectively.
This underperforms the benchmark Nifty 50, which was down only 2.91 percent in the same period. Analysts believe that while foreign institutional investors have been actively selling large-cap stocks, bringing their valuations to reasonable levels, mid-and small-cap stocks still appear overvalued. Sanjeev Hota, Head of Research at Mirae Asset Sharekhan, noted that the ongoing sell-off in these segments is not expected to abate anytime soon.
” Hota said a deeper correction is likely in stocks where valuations are still excessive and not backed by earnings growth. In the last correction cycle of 2018-19, smallcap indices declined 29 percent, and we could see a similar trend this time.”
Hota added that small and midcap stocks are primarily driven by earnings growth, which is currently absent. Additional pressure comes from global trade tensions, concerns over US tariffs, a weakening rupee, and subdued domestic macroeconomic conditions.
Small and midcap indices decline
Swan Energy and Amber Enterprises were among the worst performers in the smallcap segment during Tuesday’s trading session, plunging up to 12 percent. Fertilizers and Chemicals Travancore Ltd, Escorts Kubota, and Oberoi Realty were among the top losers in the midcap basket, shedding up to 8 percent.
Ruchit Jain, Vice President at Motilal Oswal Financial Services, pointed out that the midcap and smallcap indices have been in a downtrend, forming lower highs and lower lows. “Until there are signs of a reversal, the corrective phase is likely to persist in the short term,” he said.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, advised investors to buy quality large-caps in banking, IT, autos, pharma, and capital goods and wait patiently. “When FIIs turn buyers in India, which is inevitable, they will be buying the large caps that they are selling now. For patient investors, this is a good opportunity,” he said.
Meanwhile, the benchmark Sensex and Nifty declined over 1 percent, extending their losing streak for the fifth consecutive session. Escalating US trade tensions, persistent foreign fund outflows, and disappointing corporate earnings weighed on investor sentiment, dragging markets lower.
