Volatility in smallcaps, midcaps spooks market; Nifty's breach below 21,900 may intensify selloff

Investors should adopt a cautious approach and wait for clear bullish signal before considering aggressive long positions, say analysts

Equity benchmarks the 30-pack Sensex and broad-based Nifty extended their losing streak to a second day on March 18 as stress in midcaps and smallcaps kept investors on sidelines.

Analysts expect the negative sentiment to prevail over the next few days as investors navigate concerns of “froth” in mid and smallcap segments.

The Sensex and the Nifty were flat-to-negative at 72,678 and 22,012. About 1,891 shares advanced, 833 declined and 143 were unchanged.

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Sameet Chavan, Head Research, Technical and Derivative - Angel One, said investors should adopt a cautious approach and wait for clear bullish signal before considering aggressive long positions.

"Any decline below 21,850-21,900 can trigger another round of significant selling, potentially pushing prices towards previous low of 21,500," he said.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services pegged this week to be highly volatile for markets. "Many events like the Fed meeting outcome on March 20, spike in the US 10-year bond yield to 4.3 percent and possible SEBI directives based on stress tests in mid and small cap schemes will influence market in the near-term," he said.

Broader markets continued to bleed within the first hour of trade, with Nifty Midcap 100 and Nifty Smallcap 100 indices declining up to 0.5 percent. Fear gauge India VIX jumped over 6 percent to trade around 14 level.

"The concern regarding the elevated valuations in the mid and smallcaps continues despite the stability witnessed in these segments on March 15. Investors may adopt a wait and watch strategy and may buy largecaps in capital goods, banking, telecom and automobiles on dips," suggested Vijayakumar of Geojit Financial Services.

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Sectorally, Nifty Realty was the top sectoral loser as it slipped 0.9 percent, while Nifty Media bucked the trend to gain by nearly a percent.

Global markets mixed

Globally, the US stock futures were marginally higher overnight as investors await Federal Reserve's interest rate decision due March 20.

According to CME FedWatch tool, around 99 percent market participants are pricing in that the global central bank would leave interest rates unchanged at 5.25-5.5 percent. However, economic projections and rate cut timing will be keenly watched out for.

Dow Futures, tech-heavy NASDAQ Futures, and the S&P 500 Futures gained up to 0.2 percent overnight.

Asia-Pacific markets, too, were largely lower this morning as investors await Bank of Japan's monetary policy decision. Japan's Nikkei 225 index gained over 2 percent, while Australia's S&P 200 declined 2 percent, and Hong Kong's Hang Seng dropped 0.5 percent.

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