Midcap, smallcap indices crack up to 4% amid massive selloff; over 90% stocks in the red

Following a massive sell off in the global markets as well as domestic benchmarks, broader markets also crashed on Monday, August 5. This comes after the US recession fears mounted and rising tensions in the Middle East kept investors on edge.

The Nifty Midcap 100 index shed over 1,944 points or as much as 3.3 percent to its intraday low of 55,969.25. Meanwhile, the Nifty Smallcap 100 index tanked 772 points or 4.1 percent to its day's low of 18,800.6. In Comparison, the Nifty fell 508 points or 2 percent to its day's low of 24,209.6.

"The rally in the global stock markets has been driven mainly by consensus expectations of a soft landing for the US economy. This expectation is now under threat with the fall in US job creation in July and the sharp rise in US unemployment rate to 4.3 percent. Geopolitical tensions in the Middle East also are a contributing factor. Another significant factor is the unwinding of the Yen carry trade which is bleeding the Japanese market. The crash in Nikkei by above 4 percent this morning is an indicator of the crisis in the Japanese market, explained V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

He further added that the valuations in India, driven mainly by sustained liquidity flows, continue to be high particularly in the mid and smallcaps segments. The overvalued segments of the market like Defence and Railways are likely to come under pressure. The buy on dips strategy which has worked well in this bull run, is likely to be threatened now. Investors need not rush to buy in this correction. Wait for the market to stabilise, suggested the expert.

On the smallcap index, only 2 stocks (Mahanagar Gas and IEX) were flat but in the green while the remaining 98 stocks were down in intra-day deals. NCC, Blue Star, CAMS, Titagarh Rail, KEC Intl, Cochin shipyard, Data Patterns, IIFL Finance, Tejas Network fell over 4 percent each.

Meanwhile, in the midcap space, 8 of the 100 stocks were flat but in the green. UPL, Delhivery and IPCA Labs were up over 1 percent each. However, Kalyan Jewellers, Godrej Properties, Nykaa, LIC Housing, Bharat Forge, Bank of India, Paytm, RVNL, BSE, Indian Bank, and Coforge lost over 3.5 percent each.

Market experts are anticipating a potential slowdown in the mid and small-cap segments due to their high valuations, which may have reached unsustainable levels. As a result, they are advising caution and suggesting a shift toward large-cap investments. Vaibhav Porwal, Co-founder of Dezerv recommends booking profits in mid and small-cap stocks, which have seen significant gains, and shifting focus to large-cap stocks that offer better value. He points out that the optimism in the mid and small-cap space seems overextended at the index level. Porwal advises investors to reassess their portfolio allocations and consider reducing their exposure to mid and small-cap stocks, depending on their risk tolerance.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.