SmallCap, MidCap indices plunge 10% in last one month; What comes next?

The broader markets bled for the second consecutive day on Wednesday, falling over 5 per cent in the last two trading sessions. The Nifty Midcap100 plunged 2.72 per cent at 52,366.85 level, while Nifty Smallcap100 plummeted 2.94 per cent at 16,941.65 level in Wednesday's intraday deals. 

On Tuesday, Nifty Midcap100 ended 2.31 per cent lower with Nifty Smallcap100 closing with a fall of 2.28 per cent. Moreover, in the last one month, Midcaps have fallen 10 per cent, and Smallcaps dived by 9.53 per cent.   

Analysts say that the whole market has been correcting since September, which was a record high. From September to December 31, small and mid-caps significantly outperformed the Sensex and Nifty. However, in the last 20 days, they have come under tremendous pressure, they said.  

“A lot of liquidity has drained out of the secondary markets, particularly in small and mid-caps, where promoters have sold shares in large quantities over the last calendar year. Additionally, many IPOs in this segment have diverted capital away from secondary markets," said G Chokalingam, founder, Equinomics Research.  

Chokalingam added that many newly listed IPOs, particularly new-age digital companies, renewable energy firms, and microfinance institutions, saw valuations that were disproportionate to their fundamentals. When the market began correcting, these stocks fell much harder, in some cases up to 60-70 per cent.  

Moreover, he expects this weakness may persist until the budget is presented. However, there is hope that the budget will introduce tax reliefs for the middle class, boosting aggregate demand and stabilizing the markets.

  Top losers today

In the MidCap segment, Polycab India led the losses with an 8.44 per cent drop, followed by Godrej Properties, which fell 6.38 per cent. Real estate stocks were particularly weak, with Prestige Estates and Oberoi Realty shedding 5.75 per cent and 5.74 per cent, respectively in intraday deals.   Technology stocks also faced headwinds, as Persistent Systems slipped 5.31 per cent, and Dixon Technologies 5.17 per cent to. Oil India, L&T Finance and Brigade Enterprises also fell 5 per cent each. 

The SmallCap segment also experienced a sharp sell-off, with Kaynes Technology leading the decline, tumbling 10 per cent. IndiaMART InterMESH followed with an 8.61 per cent fall. Renewable energy stocks Sterling and Wilson Solar declined 8.35 per cent, while Aditya Birla Real Estate fell 6.95 per cent intraday.  Other notable losers included Tanla Platforms, which dropped 6.65 per cent, and Ramakrishna Forgings, which shed 6.21 per cent. Defense player Data Patterns declined 6.14 per cent, while CAMS and KEC International fell 6.11 per cent and 6.01 per cent, respectively.