Small, midcap stocks fall up to 8%; PB Fintech, Swiggy, Ola Electric among top losers: What lies ahead?

Broader markets decline

The shares of several small and midcap stocks dropped in trade on December 16, pushing the broader market indices into the red.

The Nifty Smallcap 100 index was down 0.92 percent to close at 17,265.15. The index has now snapped a three-session gaining streak. The Nifty Midcap 100 index meanwhile fell 0.83 percent to 59,710.80, extending losses for the second consecutive day.

The fall in the broader markets comes amid a downturn in the overall stock markets.

What lies ahead?

Smallcap​‍​‌‍​‍‌​‍​‌‍​‍‌ and midcap stocks are heavily being sold off today due to a general decline in risk appetite, said Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara. "The reason for such a drastic move is the combination of high valuations and global uncertainties without any new positive domestic news, which has prompted investors to aggressively take profits from their high-beta stock holdings," he added.

This drop is a manifestation of increased caution and a return to normal levels after the upward trend, rather than an indication of weakening of the underlying fundamentals in the long ​‍​‌‍​‍‌​‍​‌‍​‍‌run, the analyst noted.

The continued weakness in rupee is currently weighing on the sentiment including the broader indices after the marginal rebound, said Ajit Mishra – SVP, Research, Religare Broking. Participants should refrain from aggressive positioning especially in the smallcap space and utilise any rebound to reduce positions in the short term trades, he added.

"The advance-decline ratio of Nifty small and mid caps 100 is 1:4, while for Nifty, it’s 1:2, suggesting outflow, especially from FIIs, is more pronounced in mid and small caps. The falling rupee and global uncertainty are leading to outflows, which are impacting mid and small caps," said Shravan Shetty, Managing Director, Primus Partners.

There is potential for further upside in Indian midcap stocks, said Charmi Shah, Business Head, Wealth1. She however advised caution due to stretched valuations. "Midcap stocks currently trade at approximately 25.79 times one-year forward earnings, well above their 10-year average of 23.31 times. Additionally, despite the benchmark rally, many midcap stocks have struggled individually, reflecting a divergence between headline index levels and broader market breadth. Outflows from diversified equity funds into safer assets also pose risks in the near term," she said.

"I suggest adopting a staggered investment approach over the next three to six months, with a longer investment horizon of 4-5 years to weather potential market swings. While midcaps remain preferred for their growth potential and alpha-generating ability in niche sectors, investors should be selective and focus on companies with strong fundamentals and sectoral tailwinds," she added.

"Today’s fall in small and mid-cap stocks is largely about timing and positioning not panic. Over the last few weeks, many of these stocks had run up quite fast, and a lot of good news was already priced in. When the market reached higher levels, traders chose to book profits rather than take fresh exposure. Also, expiry-related volatility always hits high-beta stocks harder, and that was clearly visible today. There was no major negative trigger, but the mood turned cautious as indices struggled near resistance zones. Once selling started, it spread quickly because these stocks are less liquid. In such names, even small sell orders can push prices down sharply. Overall, today’s move looks more like investors stepping back after a strong rally rather than reacting to any serious fundamental issue," said Ravi Singh, Chief Research Officer from Master Capital Services.

Top losers on the midcap index:

Policybazaar-parent PB Fintech shares were the top losers on the Nifty Midcap 100 index, falling more than 5 percent. Swiggy and Bharat Dynamics (BDL) shares followed, falling around 4 percent each.

KPIT Technologies, Premier Energies and Jubilant Foodworks shares fell more than 3 percent each, while SBI Card, Nykaa, SAIL, Godrej Properties, Paytm and other stocks fell more than 2 percent each.

Top losers on the smallcap index:

Ola Electric Mobility shares were the top losers on the Nifty Smallcap 100 index, falling more than 8.5 percent. NBCC, Hindustan Copper and Redington shares followed, dropping over 3 percent each.

NCC, Garden Reach Shipbuilders & Engineers (GRSE), Brigade Enterprises and Devyani International shares fell nearly 3 percent each, while IRCON, BEML and others fell over 2 percent each.

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