Meltdown in broader market as midcaps, smallcaps burn amid heavy selling

The Sensex and Nifty were weak but the broader market witnessed a much steeper selloff.

The broader market went down on March 6 as investors heavily sold off midcap and smallcap stocks, booking partial profits amid concern over overstretched valuations. The Nifty Midcap 100 slumped nearly 2 percent while the Nifty Smallcap 100 tanked around 3 percent.

The sharp selloff in the small and mid-cap segments also dragged the overall market breadth heavily in favour of laggards so much so that nearly five stocks fell for each one that rose. About 522 shares gained, 2,681 lost, while 64 traded unchanged. The benchmark Nifty and Sensex, though weak, still fared better and were down just 0.2 percent and 0.3 percent.

The constant bouts of selloff within the broader market have been along expectations as analysts across the board warned of frothy valuations after the recent market exuberance. So far, the Nifty Midcap 100 is down 1.2 percent, while Nifty Smallcap 100 corrected around 5.5 percent in the past month.

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Even though Anirudh Garg, fund manager at Invasset PMS maintains an optimistic stance on the broader market with a 2-3-year perspective, he feels a timely and adequate price correction is essential to realign the market valuations. In his analysis, both midcap and small-cap segments appear overvalued, suggesting a cautious approach towards these segments. Hence, he suggests investors to steer clear of mid and small-caps for the time being.

Ankit Jain, Senior Fund Manager Mirae Asset Investment Managers (India) also shares a similar outlook on the broader market. He expects to see good earnings momentum in midcap and smallcap space benefitting from overall good economic growth, market share gain led by formalisation of economy, Govt policy initiatives around Make in India + PLI incentives among others driving positive delta change in earnings across different sub-segments.

"In this context, we continue to see good earnings momentum in India midcap and smallcap space and maintain positive stance from long term standpoint, notwithstanding expensive valuations might cap near term returns," Jain added.

Within sectors across the broader market, Jain finds reasonable risk reward in pockets like private sector financials, consumer discretionary, healthcare, logistics and new commerce while maintaining an underweight stance in capital goods, IT and metals.

The Reserve Bank of India's whip on IIFL Finance and JM Financial triggered a meltdown in the two counters, turning these two stocks into the biggest losers in the broader market.

IIFL Finance nosedived 20 percent in the second straight session of loss after the RBI slapped a ban on the company from issuing gold loans. On the other hand, JM Financial crashed 19 percent after the RBI imposed restrictions on loan disbursements by the company.

Among sectors, media, power and realty were the worst hit, down 2-3 percent.

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