The broader markets are leading the recovery, with both BSE small and midcap indices clocking nearly 2 percent gains, and most sectoral indices trading higher on March 5, at a time when valuation concerns have significantly beaten down several shares and benchmark indices are emerging from a five-month losing streak.
Among the top gainers on BSE midcap index were shares of Coforge, Adani Wilmar, Persistent, Mphasis and Suzlon Energy, while the major gaining shares on BSE smallcap index included names like Quick Heal, HCL Tech, India Tourism Development, Gabriel India and Cigniti Tech.
At 10:00 am, the BSE Midcap was at a gain of 1.87 percent while Smallcap had risen 1.93 percent. In early trade, Sensex was up 547.23 points or 0.75 percent at 73,537.16, and the Nifty was up 179.30 points or 0.81 percent at 22,261.95.
The underperformance, marked by record lows since September 2024, has started to see some recovery in the mid and smallcap indices on March 4. February marked the worst crash seen in the BSE midcap and smallcap indices since the Covid-19 outbreak. Herein, smallcaps dipped 14 percent, witnessing its first double-digit fall since pandemic. The Sensex and Nifty marked its greatest decline as ever seen in 29 years.
The foreign selling spree continued in February, witnessing FIIs offloading Rs 58,988 crore worth of equities. On sectoral front, the correction in February was seen the most in sectoral indices of capital goods (-14%), real estate (-13%), technology (-13%), media (-12%) and utilities (-12%). Meanwhile, strong gains were seen in Shriram Finance, Bajaj Finance, Bajaj Finserv, Hindalco, and Axis Bank, led by major regulatory and government decisions for certain sectors.
Earlier this year, veteran fund manager S Naren had sparked a debate as he advised caution regarding SIP investments in mid- and small-cap stocks. “We think it is a clear time to take out lock, stock, and barrel from small- and mid-caps,” he said. Amish Shah, Head of India Research at Bank of America Securities, also highlighted scope for further corrections, with returns potentially lagging or turning negative compared to large-cap stocks.
Analysts at Kotak Institutional Equities expect adjustment across fair valuation multiples for stocks and earnings assumptions of companies. "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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