Sensex, Nifty tumble up to 1.5% amid broad-based selloff; correction likely to intensify

Sensex crashed over 1,500 points from day's high to a low of 72,515, whereas NSE Nifty 50 breached 22,000-mark on March 13

Benchmark indices Sensex and Nifty wiped off early gains and witnessed a broad-based sharp fall on March 13 owing to concerns over 'frothy' valuations in mid-and small-cap segments. Though analysts attributed this correction as healthy, they expect the pain to stay in the near-term.

Sensex crashed over 1,500 points from day's high to a low of 72,515, whereas NSE Nifty 50 breached 22,000-mark on March 13. About 302 shares advanced, 3188 shares declined, and 40 shares were unchanged.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services expects this correction to extend in the near-term as mutual fund houses reveal their stress test results about small-and midcap fund schemes on March 15. "Since markets do not operate in a linear fashion, this correction should be used by investors to churn their portfolio towards largecaps. We believe that this correction was deemed essential and will make overall markets healthy," he added.

ALSO READ: Sebi glare, raid on Tibrewala, stress test and more: All that's weighing on mid and smallcaps

Nilesh Shah, Group President & Managing Director at Kotak Mahindra AMC, too, expects correction to intensify in microcaps and SME stocks. "SME stocks have low liquidity and governance standards are unpredictable," he told in a conversation with CNBC-TV18.

Broader markets were battered on March 12, with Nifty Midcap 100 and Nifty Smallcap 100 indices declining up to 5 percent. India VIX, which measures volatility over next few days, jumped over 5 percent to trade above 14 level.

ALSO READ: Beginning of small-cap meltdown? Diffusion indicator shows acute stress

The broad-based selloff also followed after SEBI Chairperson Madhabi Puri Buch indicated signs of manipulation in SME listings. Her statement comes at a time when the market regulator is investigating investment banks regarding inflated subscriptions in SME IPOs.

Moreover, industry body, the Association of Mutual Funds in India (AMFI), has asked asset management companies (AMCs) to put in place a policy to protect investors in small-cap and mid-cap segments in light of the froth building up in the broader markets.

Barring Nifty FMCG, all other sectors nosedived in the sea of red. Nifty Media, Metal, and Realty indices were the worst hit as they declined over 5 percent each.

Having said that, analysts at ICICI Securities asserted that the ongoing breather would make market healthy and pave the way to gradually head towards 22,700 in coming weeks. "In the process, on expected lines large caps would continue to outperform against the broader market as ratio of Nifty vs Nifty 500 has bottomed out," they added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.