Broader markets fall as West Asia war weighs; check top drags

Mid and smallcap indices extended their downward journey on Friday, driven by concerns over a prolonged conflict between the US and Iran and rising retail inflation. As of 12:30 PM, the Nifty Midcap 100 index was down 2.2 per cent, while the Nifty Smallcap 100 declined 2.4 per cent. 

Friday marked the third straight session of losses for both broader market indices. Since the start of the West Asia conflict, the Nifty Midcap and Smallcap indices have moved lower, mostly in line with the frontline Nifty 50, but with less intensity. The two broader market indices have dropped more than 6 per cent versus a decline of 7.4 per cent in the Nifty 50.  

According to ACE Equity data, nine companies from the Nifty Midcap 150 index lost more than ₹10,000 crore in market valuation. Ashok Leyland led the losses, with its market capitalisation decreasing by ₹19,166.39 crore to ₹1,04,830.68 crore (data as of Thursday). Ashok Leyland shares fell 15 per cent over the previous nine trading sessions. It was followed by IDBI Bank, which lost ₹18,494.13 crore in valuation, with the stock tumbling 14.8 per cent. 

The remaining companies that saw an erosion of more than ₹10,000 crore in market capitalisation were Polycab India (₹17,395.18 crore), Union Bank of India (₹15,396.98 crore), HPCL (₹11,575 crore), HDFC AMC (₹11,548 crore), Vodafone Idea (₹11,159.33 crore), Indian Bank (₹10,896.94 crore), and Dabur India (₹10,491.38 crore). These stocks fell in the range of 8 to 14 per cent. 

In contrast, two companies emerged as the biggest gainers, with their market capitalisation rising by more than ₹10,000 crore during the same period. Adani Total Gas shares surged 18.6 per cent, increasing its market capitalisation by ₹10,514.18 crore to ₹66,824.46 crore. State-run NALCO also saw its market capitalisation rise by ₹10,018.83 crore as its shares gained 15.4 per cent. 

From the Nifty Smallcap 250 space, nine companies witnessed market capitalisation erosion in the range of ₹3,000 crore to ₹4,000 crore, while 17 companies saw erosion in the range of ₹2,000 crore to ₹3,000 crore. Aegis Vopak Terminals and Hindustan Copper were the biggest losers, with their market capitalisation falling by ₹3,833.65 crore and ₹3,766.56 crore, respectively. 

On the other hand, Aditya Birla Sun Life AMC emerged as the biggest gainer, adding ₹3,077.01 crore, followed by Radico Khaitan and MCX, whose market capitalisation increased by ₹2,786.25 crore and ₹2,111.33 crore, respectively, during the period. 

Analysts said that market correction has significantly impacted mid and smallcap stocks, with several companies retreating sharply from their recent highs. As a result of the correction, valuations across this segment have become more reasonable and aligned with fundamentals.

Vinod Nair, head of research, Geojit Investments, said that characteristics of the mid and smallcap stocks are the fastest to go up and come down swiftly. Investors active in this space must stay away from trying to find a bottom in markets.

“Many mid and smallcaps have corrected steeply from their recent highs. The valuations of this segment have now become fair. Stocks in sectors like digital platform companies, defence, pharmaceuticals and financials look attractive. Midcap IT stocks offer contra buying opportunities,” he said.

According to Sunny Agarwal, head of fundamental research, retail desk, SBI Securities, the prolonged correction in mid and smallcap stocks has now entered its 17th month, and this was because of sustained compression in earnings multiples, and reduced participation from institutional investors.

"After this extended downturn, valuations in these segments are now comfortable. Many companies that were previously trading at 30–40 times earnings are now closer to a 29 price-to-earnings multiple," he said and noted that select recycling, defence, hotels, pipe and steel tube manufacturers could see strong tailwinds going forward. Additionally, NBFCs that are focused on gold loans and microfinance are also looking attractive, he added.