The selling frenzy in the Nifty Smallcap 100 index, down over 12% so far this month, has been the worst since March 2020, as the broader market indices extended their downward move on January 27, falling between 3-4%.
Last time the smallcap index fall by more than this magnitude was during the Covid-induced panic selling in March 2020, data showed. However, it should be noted that the index recovered in subsequent months to end that year in the green, higher by more than 21%. Barring 2022, last five years have seen the Nifty Smallcap index deliver double-digit positive returns.
At 10:45am, there were no gainers in the Nifty Smallcap 100 index, with across-the-boars selling of as much as 5% in constituents. Read more on the market selloff right here. Several analysts are pointing at weak earnings, softer consumption and a weakening currency is exacerbating the fall.
January 2025 has seen the first double-digit fall on the index for the first time since February 2022. Out of last 14 January, the Nifty smallcap index has delivered negative returns on 57% of occasions, showing the seasonality has been weak for the index at the start of the year.
Nifty Smallcap 100 Index delivered negative returns only in one out of last five years.
| Smallcap 100 Index | Annual Returns |
| 2024 | 23.94% |
| 2023 | 55.62% |
| 2022 | -13.80% |
| 2021 | 59.28% |
| 2020 | 21.47% |
Read More: Nifty may re-test October lows by March, says IndiaChart's Rohit Srivastava
With the Nifty 50 index slipping below the 23,000, chartist will be closely tracking the next immediate supports for any sign of a halt, or a technical rebound. "From a technical perspective, the benchmarks remain vulnerable to further downside, with critical support in the 22,700-22,900 range for the Nifty. Any recovery will likely face strong resistance in the 23,450-23,650 zone," said Ajit Mishra – SVP, Research, Religare Broking. "Greater concern lies in the pronounced selling in the midcap and smallcap segments, which is unlikely to ease in the near term," he added.
The sentiment for Indian stocks to a beating after US index futures were pointing lower, and Asian markets took a hit, weighed by weakness in stock futures of US tech stocks. Nasdaq futures fell more than a percent ahead of earnings season, as four of the seven companies among the 'Magnificent 7' are expected to report results this week. Chip maker stocks were also hit after Chinese startup DeepSeek launched of a free, open-source AI model poised to rival OpenAI's ChatGPT. This resulted in the frenzied downloading of the app, making it the top AI tool on the app store, seeming to threaten major US large tech players.
The dollar strengthened after US President Trump imposed retaliatory tariff and sanctions on Colombia for refusing to accept deported migrants, which was later reconciled and the White House reversing its earlier decision. The US FOMC statement this week could also influence the market sentiment this week. The US central bank is widely expected to hold interest rates steady, marking the first pause in the rate-cutting cycle that started in September.
This week will be significant not just for the equity markets but for the economy as well, as the Union Budget on February 1 will be closely tracked for to revive consumption and ramp up capex and infrastructure spend.
Market participants see further pressure on the benchmark index unless 23,475 is reclaimed in the near term. "Technically speaking, breaking above 23475 is needed in the near-term for a bullish flip, but till that happens 22976 will remain vulnerable with the longer-term focus in the 22500 - 22800 area," Akshay Chinchalkar, Head of Research, Axis Securities said.
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