Broader markets crash! Small, midcap indices tumble up to 4%. Why analysts are sounding the alarm

Smallcap and midcap stocks tumbled on Friday, extending their losses and dragging broader market indices down by up to 4%, as analysts continued to flag valuations that are difficult to justify.

The Nifty Smallcap 250 index dropped 4% to hit the day’s low at 16,237. The index has crashed around 8% in just four sessions this week so far, and nearly 12.5% after hitting a 52-week high of 18,551 in early September this year.

Jammu & Kashmir Bank, Tata Teleservices (Maharashtra), Black Box, Urban Company, TD Power Systems, Ola Electric Mobility, PCBL Chemical, TD Power Systems, Jindal Saw, Karur Vyasa Bank, Afcons Infra and others bled up to 13% to lead losses on the index.


The Nifty Midcap 100 index, meanwhile, dropped nearly 3% to hit the day’s low at 55,421. The index has fallen 6% this week so far and 14% in less than two months after hitting a 52-week high of 64,451 late in August.

Swiggy, Havells, Motilal Oswal Financial Services, Lodha, Colgate Palmolive, Adani Total Gas, KEI Industries, NMDC, JSW Energy, Kalyan Jewellers, BHEL and NALCO were among the top losers on the midcap index, falling 4-15%.

Also read | Market sell-off deepens as midcaps enter correction zone

Why are analysts sounding the alarm for broader markets?

A noticeable trend in the stock market today is the significant underperformance of the broader markets in comparison to the large-cap Sensex and Nifty. While Sensex and Nifty have dropped up to 1%, Nifty Smallcap 100 index plunged 4% while Nifty Midcap 100 index crashed 3%.

“The sharp correction in the broader market, particularly in small-caps, might continue since their valuations, driven up by liquidity rather than fundamentals, are hard to justify. Fairly-valued large-caps, particularly those which are growing well, present value buying opportunities for patient investors,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

Small and mid-cap valuations have come off from very high levels but remain on the higher side, said Atul Bhole, executive vice-president and fund manager at Kotak Mahindra AMC. "That said, the aggregate earnings outlook is holding up very well, with 16-20% earnings growth projected for the midcap and smallcap universe. Any improvement in news flows on the war, crude prices and yields could cause a relief rally."

Also read | Why are markets crashing today?

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.