Smallcap, midcap indices fall close to 2%, Rs 18 lakh crore eroded since correction began

Smallcap, midcap indices crash over 2%, Rs 18 lakh crore eroded since correction began

Nifty Midcap 100 and Nifty Smallcap 100 continued to fall for a fifth consecutive session, on Monday, March 1, lurking close to 2 percent fall in early trading hours. The sell-off across the markets continued as geopolitical concerns weighted.

From its peak, Nifty Smallcap 100 has crashed over 25 percent, shedding Rs 5.25 lakh crore in market capitalisation from its high. Meanwhile, Nifty Midcap 100 tumbled over 21 percent from its peak, eroding Rs 13.35 lakh crore in its market capitalisation.

Since its peak in mid-September, Nifty 50 index has fallen over 14 percent, nosediving for the next five consecutive months to mark its longest losing streak in nearly 30 years. This has caused over Rs 31.94 lakh crore in wealth to disappear, while the broader markets eroded Rs 18.60 lakh crore.

Nifty 50 is already losing at the start of the day, making it potentially an eighth consecutive session of decline.  As of 1o:00 am, Nifty 50 is at a decline of 0.34 percent to quote at 22,037.

The sustained correction, however, is bringing potential ease in Nifty-50 Index’s valuation to below the 10-year mean level of 20x one-year forward P/E & inch towards -1SD.

Veteran CIO of ICICI Prudential, S Naren’s comments were one among the many that warned investors to reassess small and mid-cap overvaluations against the euphoria in the broader market.

If we trace these warning signs across the timeline, it takes us about a year back when SEBI Chairperson, Madhabi Buch had urged mutual fund houses to ensure checks and balances against the persistence of this “bubble”.

Major investors like Prashant Jain and Kotak Institutional Securities’ Sanjeev Prasad, among other seasoned veterans had begun to raise concerns since late 2023 and have only become more pronounced as retail-driven demand continues to fuel rising stock prices in these volatile segments.

Speaking about overvaluations leaving no room for multiples to re-rate further, Prashant Jain, Chief Investment Officer at 3P Investment Managers, had mentioned that the underperformance “wasn’t surprising” for him. Sanjeev Prasad, Managing Director at Kotak Institutional Equities, had earlier criticized the influx of investments in the broader market, pointing out the “mid-cap madness”.

When one finds themselves in the middle of a cycle (bull-run), the small and mid-caps might seem to outperform roughly in the 6-8 percent range per annum for last two-three years, suggested Sameer Arora, Founder and Fund Manager of Helios Capital in a previous interview.

In the end, when the price corrections take place, it is faster than what the investors would expect. Arora explained even though last three years reveal lowest returns in history of Nifty, except NSE 500 index still performing better, over longer period of time (about seven years) shows returns within the typical range - about 13 to 14 percent for Nifty, and 15 to 16 percent for the Nifty 500.

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