Stock Market Crash: Why Midcap, Smallcap Stocks Are Falling? Indices Nosedive By 10-12% In Two Weeks

Stock Market Crash: While benchmarks Sensex and Nifty are trading sideways on Wednesday, January 22 after their 2% sharp dip in the previous session, however, midcap and smallcap stocks found no rest from bears. Nifty Midcap 100 and Nifty Smallcap 100 indexes are down by 3% on Wednesday alone, after their 2-3% downside yesterday. Not just, midcap and smallcap indices are in red so far in January, erasing their monthly high and declining by 10-12% in a two-week span.

Midcap Stocks:

The Nifty Midcap index dipped by at least 1,481.5 points on Wednesday, to hit an intraday low of 52,353.45. Its 30-day performance is down by 5.40%. However, from January 3rd to 22nd, the index is down by 10.31%.

From December 23rd to January 22nd, the highest level of the Midcap index was 58,393.80 which was recorded on January 3rd. From this level, the index has plunged by 10.31% compared to the January 22nd intraday low.

The Nifty Midcap 100 Index represents about 13% of the free float market capitalization of the stocks listed on the NSE as of September 30, 2024. The total traded value for the last six months ending September 2024, of all index constituents is approximately 21% of the traded value of all stocks on NSE.

The worst-performing midcap stock on the index is NMDC which is down by 69% in a 30-days period. While Mazagon Dock Shipbuilders followed with a decline of over 50%. Stocks like Prestige, Oberoi Realty, Policy Bazaar, Supreme Industries, Kalyan Jewellers, Oracle Financial Services, and Astral also dragged the index with a downside of 15% to 35% in a 30-days span.

SmallCap Stocks:

Nifty Smallcap 100 index is down by 541.2 points on Wednesday, after hitting an intraday low of 16,915.35. The index is down by 7% on a month-on-month basis.

From December 23rd, 2024, to January 22nd, the index's highest level was 19,224.95 and it was seen on January 3rd as well. Since then, the index has underperformed both Nifty and Nifty Midcap, with a fall of 12% compared to the latest intraday low.

In a 30-day period, CDSL, CESC, Titagarh, KEC, Aditya Birla Realty, and Go Digital are down by 19% to 25%.

Among the key reasons for the decline in midcap and smallcap indices is the broader market trend which is under pressure due to macroeconomic risks, consistent foreign investor outflow, a miss in corporate results, and a slowdown in the economy.

Jaykrishna Gandhi, Head - Business Development, Institutional Equities, Emkay Global Financial Services said, relentless selling by the FPI, the slowdown in the economy and miss in the corporate earnings are the key points concerns clouding the Indian investors. FII's in January have already sold INR 500 bn. It has been a flurry of Executive orders from POTUS, but all on expected lines so far - the key among them being on Immigration (declaring a national emergency at the US-Mexico border); Climate and Energy (withdrew from Paris Climate Accords and eased regulations on Oil & Gas production); Abolition of DEI programs and freezing of Federal hiring (except military).

Gandhi added that some media reports highlighted that he would rather set up a federal agency to negotiate tariffs than impose them on the first day itself, which caused a sharp DROP in USD. However, most of the tariffs on China or Others will be imposed as early as FEB 1st.

"Our headline indices are BACK to new lows, and SMIDs are to follow suit soon. The emerging markets have hardly generated returns over a decade vis a vis the US market in USD terms, any incremental flows or lower selling in the emerging markets could be confirmed only once the dollar weakens and the magnificent seven start correcting," the expert added.

With the Budget around the corner, Gandhi said, there are more speculations on what the government's efforts could be to revive growth. From ordinary taxpayers to tech, healthcare, insurance, and finance sectors, hopes are high for income tax slabs, GST rationalisation, infrastructure allocation, and regulatory updates, to address economic distress and consumer sentiment.

Nonetheless, Gandhi expects the market to stabilise in the coming month and key announcements in budget and dollar weakening may act as a trigger for an up-move.