Smallcaps, midcaps snap losing streak, defy sour market trend to jump over 1%

Garden Reach Shipbuilders, Blue Star, Sterling and Wilson, along with Olectra Greentech lead the gains on the Nifty Smallcap 100 index.

Despite the benchmark indices seeing relentless selling pressure in early trade on March 4, the broader markets snapped their losing streak to trade with gains as investors went bargain hunting in the downbeat segment.

At 10.30 am, the smallcap gauge Nifty Smallcap 100 was up 1.2 percent, while the Nifty Midcap 100 index was around half a percent higher compared to the previous session's close.

The gains on the smallcap index were led by Garden Reach Shipbuilders, Blue Star, Sterling and Wilson, along with Olectra Greentech, which jumped up to nine percent. The midcap gauge was led by Bharat Dynamics, Cochin Shipyard, RVNL, and BSE shares.

While the Nifty 50 has crashed 16 percent from highs, the Nifty Midcap 100 and Nifty Smallcap 100 have officially entered the bear territory, cracking 21 percent and 26 percent respectively.

On the Nifty 50, almost Rs 36 lakh crore in wealth has been wiped away since the correction began, while the smallcap and midcap indices have seen an erosion of almost Rs 20 lakh crore in market capitalization.

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Experts have long warned about stretched valuations in the midcap and smallcap segments, but retail investors largely ignored the concerns. With froth building up in the market, a correction was inevitable, analysts said. ICICI Pru AMC’s CIO S Naren warned against valuations in mid- and small-cap, which sparked a debate in the industry.

Amish Shah, Head of India Research at Bank of America Securities, remains wary of the broader market, arguing that mid and small-cap stocks remain overvalued despite recent corrections. He anticipates further declines in this segment, with returns potentially lagging or turning negative compared to large-cap stocks.

"We expect the Indian market to see a diverse performance across caps, sectors and stocks in the next few months. Large-cap indices and stocks may be range-bound, while several midcap, small-cap and ‘narrative’ stocks may see a sharper correction," analysts at Kotak Institutional Equities noted.

Looking ahead, the brokerage also expects the Street to adjust its fair valuation multiples for stocks and earnings assumptions of companies in light of the recent market correction. "This will be particularly evident in mid-cap, small-cap, and ‘narrative’ stocks, where valuations had largely become detached from reality," KIE said.

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