The BSE SmallCap index fell 2.2% and MidCap index lost nearly 1% on Monday, while the Sensex declined 0.3%. Both the indices are down 13% from their all-time highs hit in January and October 2021, respectively. The Sensex has declined 7.3% from its all-time high in October.
With the liquidity-driven exuberance in the market wearing off, analysts said the riskier mid- and small-cap stocks are bearing the bigger brunt of the risk-off sentiment on account of geopolitical tensions, multi-year high oil prices and concerns over the possible aggressive interest rate hikes by the US Federal Reserve from March.
“Retail investors who entered the market in the last two years are selling out as they are running into losses after the correction, their patience is wearing out as since July-September last year, the broad market has not gone anywhere,” said Siddarth Bhamre, director-alternative investments and research at InCred Equities.
Some of the biggest SmallCap index laggards this year include Metropolis Healthcare, GE Power India, Mahindra Logistics, Tata Teleservices (Maharashtra, Stove Kraft and Indiabulls Real Estate which have fallen over 36-43% so far. Among the MidCap index constituents, Vodafone Idea, Indraprastha Gas, Zee Entertainment, Info Edge (India), Mindtree and Ramco Cements have been the biggest casualties, down over 19-27% for 2022.
“The valuations were higher for mid- and small-caps versus the large caps. The earnings season is over and while the performance at the Nifty companies’ level has been reasonably good with 30% growth in topline, the broader market performance is much weaker,” said Hemang Jani, head of equity strategy-broking and distribution at Motilal Oswal. “In the context of higher valuations, weaker earnings performance and tighter liquidity, the risk appetite will be on the lower side,” said Jani.
Experts said a 13% correction from record highs in the Mid and SmallCap index is not a guarantee that the segment will enter a bear market, but technical charts are not painting a rosy picture either. A bear market is said to happen when an index or stock falls 20% from the top.
“The Nifty is holding above the support of 17,000, but the Nifty SmallCap 100 index has breached and closed below the support of 10,200 on Monday, which is not a good sign,” said Bhamre. The Nifty MidCap 100 index ended down 1.24% at 28,575.75.
Bhamre said Nifty MidCap 100 is also near support of 28,500 and if it goes below that level, there could be more correction.
