Home / Markets / Stock Markets /  Midcap and smallcap stocks bleed again today. What's triggering the sudden selloff?

Midcap and smallcap stocks continued to trade with sharp cuts on Wednesday, dragging the Nifty Midcap index and Smallcap index over 2% lower. Meanwhile, S&P BSE Smallcap and BSE Midcap indices also plunged more than 2% today.

The broader market witnessed the sudden selling in Tuesday's session also, which the market participants attributed to profit-booking and also, the new BSE rule on additional surveillance that intends to curb excessive price movement in securities listed on BSE trading platform.

Exchanges in consultation with SEBI, have introduced various surveillance measures such as Graded Surveillance Measures (GSM), Additional Surveillance Measure (LTASM), Short-Term Additional Surveillance Measure (ST-ASM), Trade for Trade (TT) etc.

''In continuation with our endeavor to maintain market integrity and curb excessive price movement in securities listed exclusively on BSE Trading Platform, a need has been felt to further strengthen the extant surveillance measures. Accordingly, a new surveillance framework viz. Add-on Price Band Framework is being introduced by the Exchange for securities listed exclusively on BSE Trading Platform,'' the circular said.

This new surveillance can also be a reason for crash in midcap and smallcap stocks, as they are expected to be affected the most by this, analysts said.

Indian broader indices outperformed benchmarks during the second wave of covid pandemic, and now experts see some sharp correction in the space. “Both small-cap and mid-cap stocks have been nosediving as these stocks are going through adjustment of their valuations. Post-second wave of Covid-19 fear, both small-cap and mid-cap stocks have beaten benchmark return by near 3-times. When the return was so sharp, slide was also expected fast and furious after the profit-booking trigger," Saurabh Jain, AVP — Research at SMC said.

Under midcaps and smallcaps, Manapurram Finance, Trent, Prestige, Whirlpool, JSW Energy, Linde India, Quess Corp, Sequent were among the top laggards, pulling the broader indices down.

Benchmark Sensex and Nifty also opened flat on Wednesday and fell further in early deals. ''The Nifty continues it's struggle to keep above the 16300 level. It is facing resistance every time it tries to conquer it. If we can get past that on a closing basis, we should go up higher to 16600. On the flip side, a good support lies at 16100. As long as that holds, we are in bullish terrain,'' Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments said.

On technical front, Mohit Nigam, Head - PMS, Hem Securities said that Nifty50 shall continue on its upside momentum with support levels of 16,100 and the near term resistance at 16,400. ''We believe any significant dip is a good opportunity to accumulate quality stocks in these markets.''

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