Nifty SmallCap up 13% from recent low; is it out of the correction zone?

Analysts believe that the recent up move is led by bottom-fishing in select smallcap stocks; the index, however, needs to conquer the long-term averages to qualify for a market reversal.

Equity benchmark indices were seen holding gains for the fifth straight trading session on Friday. The NSE Nifty 50 index and the BSE Sensex have rallied around 4 per cent each in the last five trading sessions and quoted around 23,250 and 76,550 levels in today's intra-day trade.  The recent up move in the market was attributed to reduced intensity of selling by foreign institutional investors (FIIs) as the US Dollar Index dipped from record high levels, and US Fed reiterating a likely 50 basis points rate cut in 2025. That apart, domestic institutional investors (DIIs) continued to support the market with unabated buying.  FIIs thus far in March have net sold shares worth ₹ 22,114 crore as against the average net sales of almost ₹ 59,000 crore in February, and ₹ 87,375 crore in January. On the other hand, DIIs have net purchased stocks to the tune of ₹ 33,485 crore so far in March; while net bought shares worth ₹ 64,853 crore and ₹ 86,592 crore in the preceding two months.    The NSE Nifty 50 has gained 6 per cent from its recent low of 21,965. In comparison, the Nifty SmallCap 250 index has soared 12.7 per cent from its low of 13,428 hit on March 03, to a high of 15,135 thus far on Friday.  The sharp rally in the SmallCap index is led by bottom-fishing and resilience shown by select stocks following the 3-month long correction, says Kranti Bathini, Director-Equity at WealthMills Securities. He believes the near-term market pullback is likely to continue as long as the Nifty holds above the 23,000-mark.  Among individual stocks, Garden Reach Shipbuilders, Jyoti CNC Automation, Avanti Feeds, Action Construction Equipment and Chennai Petroleum have soared over 31 per cent each. Amber Enterprises, Data Patterns, Deepak Fertilisers, Balrampur Chini, HEG, Tanla Platforms, Godfrey Phillips, CAMS, Welspun Corp and Astrazeneca Pharma India were the other major gainers - up over 21 per cent each.      In general, a 10 per cent or more fall from the peak for the market or index is considered as entering a correction mode. Thus, can a more than 10 per cent rise from the bottom qualify as an exit of correction mode?  Ajit Mishra, SVP Research at Religare Broking differs on the same. He explains that in the case of the SmallCap index it was down more than 20 per cent from its peak and entered a bear market territory. Now that the Nifty SmallCap index has recovered and reclaimed the short-term moving averages, it is a good sign. However, the index is still far from the long-term averages which stand in the 17,000 - 17,200 zone.  Unless and until the Nifty SmallCap index does not conquer the long-term hurdles, we can't say that the market has reversed, Ajit Mishra adds.