The small and midcap index has fallen by up to 9% so far this month. Small investors mostly invest money in these shares. In such a situation, the fall in small and midcap shares causes direct loss to them. This decline has become more rapid in the last few days. Something similar happened even today. There was a rise in Sensex and Nifty, but the trend of decline in midcap and smallcap stocks continued. After all, why is this decline happening in small and midcap indices and what are the main reasons behind it? Let us know.
First of all let’s talk about market performance. The declining trend in Nifty Midcap 100 and Nifty Smallcap 100 indices continued even today. These indexes fell by 2.5% in Wednesday’s trading session. The special thing is that even before this on January 21, these indices had fallen by more than 2%.
Sensex and Nifty made some comeback today after yesterday’s fall. But the bloodshed still continues in the broader market. The biggest decline has come in Nifty Smallcap 100 index. This index has fallen by 9.2% so far this month. On January 21 and 22 alone, the index fell 5% in two days. Stocks like Aditya Birla Real Assets, Indiamart Intermesh and Keynes Technologies fell up to 9%.
Analysts say that this segment is declining due to high valuations, continuous selling by foreign investors and profit booking. On the other hand, Nifty Midcap 100 has fallen by about 7.7% this month. Midcap stocks like Persistent Systems, Prestige Estates and Oberoi Realty have fallen up to 8%.
Earlier on Tuesday, BSE Sensex fell by a massive 1,235 points, closing at its 7-month low. Similarly, NSE Nifty also fell by 320 points and reached the level of 23,024. Nifty has fallen by about 12% from the high of September 2024.
Main reasons for decline
Now the question is why is this decline happening? Sonam Srivastava, market analyst and founder of Right Research PMS, said that there are many reasons behind this-
1. High valuation
After the sharp rally of 2023, small and midcap stocks were well above their historical averages. The market was not finding any new triggers to justify these higher levels. Due to this, it was natural that there was some correction in these stocks at this level.
2. Selling by Foreign Investors (FII Selling):
Foreign investors are withdrawing money from the Indian stock market for various reasons. Due to this, their stake in these shares has also decreased, which has created pressure on the market.
3. Monetary and economic pressures (Macroeconomic Pressures)
Sonam Srivastava said that increasing uncertainty at the global level, high crude oil prices and RBI’s strict monetary policy have further increased the concerns of investors. Besides, the increase in bond yields has also led to lack of liquidity in the market and big investors have become disillusioned with equities.
4. Profit Booking:
Small and medium investors had benefited greatly from these shares in the earlier rally. Since the Corona period, there was a competition among midcap and smallcap stocks to give multibagger returns. But now amid the falling market, such investors are withdrawing their profits and this has also become a reason for the fall in these shares.
so what happens now?
Market analysts say that in the current environment of the stock market, it is important for investors to be cautious. They should focus on quality stocks with strong fundamentals and avoid speculation. Sonam Srivastava said that such decline in the market is necessary from time to time. This brings the valuations of companies to a sustainable level and gives long-term investors an opportunity to enter good quality stocks at the right prices.
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