Smallcap stocks slip into bear market territory, midcaps on brink

This week worst for Smids since Covid fall

Investors endured another challenging session on Friday as smallcap stocks tumbled over 3 per cent, sliding into bear-market territory, while midcaps fell 2.4 per cent, extending their decline from peak levels to 18.4 per cent. The largecap-focused Nifty 50 and Sensex indices also dropped more than 1 per cent intraday before paring half their losses.

 

A 20 per cent drop from a recent peak defines a “bear market”.

 

This week marked the worst performance for the broader market since the Covid-hit week-ended March 20, 2020, with the Nifty Smallcap 100 plummeting 9.4 per cent and the Nifty Midcap 100 falling 7.4  per cent.    

 

 

The downturn was fuelled by slowing corporate earnings growth, stretched valuations, concerns over US trade policy shifts, and relentless foreign investor selling.

 

Nearly ₹78 trillion has been erased from India's peak market capitalisation — one of the most severe episodes of wealth destruction in absolute terms for domestic equities.

 

The Nifty Smallcap 100 has plunged 21.6 per cent from its highs, while the Nifty Midcap 100 has slumped 18.4 per cent, both closing at eight-month lows. The Nifty 50 and Sensex, down roughly 12 per cent from their peaks, ended at 22,929 and 75,939, respectively — their lowest close since January 27 and near eight-month lows. 

 

For the week, the Sensex and Nifty lost 2.5 per cent and 2.7 per cent, marking their worst weekly drop since December 22, 2024, and extending their losing streak to eight sessions, the longest in two years.

 

The total market capitalisation of BSE-listed firms declined by ₹7 trillion on Friday to ₹ 400.2 trillion, its lowest since June.

 

Foreign portfolio investors (FPIs) offloaded ₹4,295 crore in equities, pushing year-to-date net outflows beyond ₹1 trillion.

 

"Risk-averse sentiment continues to rule investor minds as corporate earnings are significantly lower than market expectations during the start of the year, especially for mid and smallcap companies. Muted earnings trend, rupee depreciation, and external factors like US tariffs are expected to keep the sentiment weak in the near term, which may further push FPIs outflows. Volatility is expected to stay elevated until there is clarity on tariffs and a recovery in corporate earnings," said Vinod Nair, head of research of Geojit Financial Services.

 

Market breadth remained weak, with 3,386 stocks declining and only 629 advancing. More than two-thirds of Sensex constituents fell, led by Sun Pharma, down 2.4 per cent, and Larsen & Toubro, which slipped 0.9 per cent.

 

"While efforts to hold the 22,800 level continue, the overall market structure suggests further downside risks. The performance of the banking and IT sectors will be crucial in determining market direction. Traders should adjust their strategies accordingly, with a strong emphasis on trade management," said Ajit Mishra, head of research of Religare Broking.