Broader markets plummet as Russia-Ukraine crisis escalates; Vix soars 30%

Nifty Smallcap 100 index plunges 6%, extends YTD fall to 17%

If the drop in headline indices was scary, the performance of the broader market was worse. On Thursday, the Nifty Smallcap 100 index dropped 6.3 per cent, entering bear market territory. The index is now down 22 per cent from its 2022 peak.

The Nifty Midcap 100 Index, which also fell about 6 per cent, is on the verge of entering bear market territory, having dropped 18 per cent from its peak. In comparison, the benchmark Nifty is down 12 per cent from this year’s high of 18,477.

And, the bottom may still be some way away as the 30 per cent surge in the Vix Index, a gauge of volatility, on Thursday indicates nervousness among investors.

The fall in the broader market follows last year’s outperformance.

“Investors were lapping up the mid- and small-cap segment with scant regard for valuations. A lot of IPO stocks were bought at exorbitant valuations. The number of stocks with strong fundamentals in this segment is a minority. This carnage is likely to continue for some more time,” said G Chokkalingam, founder, Equinomics.

The sustained fall in the broader market has pinched investors who follow buy-the-dip philosophy.

“For the small and mid-cap investors, especially those who started investing in the last two years, and those wedded to this idea that you buy whenever there is a correction you buy… That strategy is not working anymore. Whatever they bought in the last two or three months will be showing losses because the advance-decline ratio has been bad for a while,” said Ambareesh Baliga, an independent analyst.

In the near-term, equities face headwinds such as an interest rate hike by the US Federal Reserve, heightened geopolitical tensions and margin pressure due to spike in commodity prices, mainly oil. Market players say the small- and mid-caps will continue to correct.

This could affect retail investments.

“There is a possibility that these investors will stop buying. That is negative for Indian markets as the last couple of months, retail buying, whether directly or through mutual funds, held the markets when overseas investors were selling,” added Baliga.