Jefferies calls smallcap, midcap selloff as healthy correction, not a larger meltdown

Global brokerage firm Jefferies sees the recent correction in smallcap and midcap stocks as healthy as it is not a larger meltdown. The correction gained significance after the Association of Mutual Funds in India (AMFI) recently issued an advisory to its members, urging them to moderate inflows to small and midcap schemes and to rebalance their portfolios.

Jefferies also said that an alert from the Sebi chief and ICICI Prudential Mutual Fund move to suspend fresh subscriptions through lumpsum mode into its small cap fund (IPSCF) and midcap fund (IPMCF) have fuelled the selloff spree in small and mid-cap stocks.

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The AMFI notice was issued after markets regulator Securities and Exchange Board of India (Sebi) flagged concerns about a potential buildup of speculative activity in small and mid-cap segments. Small and mid-sized funds have experienced significant inflows, raising concerns among authorities about their resilience in the event of a sharp downturn in the market. Sebi has also been reviewing stress tests conducted by these funds.