High-flying Nifty Junior index slumps to 9-month low on valuation jitters; Zomato leads losers
Indian stocks are experiencing a significant downturn as investors reassess high valuations amidst slowing earnings growth. Nifty 50 Junior has tumbled10.4% in January so far, marking its biggest monthly drop since the March 2020 crash of 20.26%
Indian Stock Market: The once high-flying Indian stocks, which seemingly rallied with no upside limit, are now sliding as investors reassess valuations amid market headwinds. From blue-chip to small-cap stocks, all are bearing the brunt of the recent sell-off, with nowhere to hide from the downturn.
Notably, Indian markets have been experiencing relentless selling pressure in 2025, compared to their global peers, as high valuations coupled with slowing earnings growth have raised concerns.
The markets have seen a massive rally post-COVID-19, with no major pullbacks, which elevated valuations to extreme levels. To justify these high valuations, earnings growth needed to be exceptionally strong.
However, with signs of a slowing Indian economy, disappointing results across multiple sectors, and a shift in global risk appetite, investors are now reassessing their positions, leading to a broad-based correction, particularly in overvalued segments such as mid- and small-cap counters, as markets adjust to more realistic expectations.
Nifty Junior's worst month since 2020
Amid this backdrop, the Nifty 50 has corrected nearly 12% from its September peak, while the Nifty 50 Junior (Nifty Next 50), representing the subsequent tier of liquid securities after the Nifty 50, has witnessed even more pressure during the recent correction.
The index has tumbled nearly 10.4% in January so far to hit a 9-month low. This is also marking its biggest monthly drop since the March 2020 crash of 20.26%, highlighting the shift in investor sentiment toward safer assets. From its September peak of 77,918, the index has declined 22%, currently trading at 60,912.
Over the last five years, the index has surged 118%, ending four out of those five calendar years in positive territory.
Commenting on recent market developments, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "YTD Nifty is down 3.3%, while Nifty Midcap is down 9.1%, and Nifty Small Cap is down 14.71%. The takeaway from this important data is that valuations are reverting to the mean. This trend will make the market healthy and is likely to continue. Correction in the overvalued broader market is desirable."
"The recovery in the market witnessed yesterday can continue with resilience in fairly priced financials. However, a sharp rally is unlikely since FIIs will sell at higher levels. The market will be looking forward to positive cues in the budget. The Fed decision today is unlikely to influence the market since no change in policy is expected from this meeting," he added.
Top Nifty 50 Junior index losers
Only eight stocks in the Nifty 50 Junior index are currently trading in the green zone this month, while the rest are trading in the red, with 18 stocks sliding in the range of 10% to 26%.
As seen in the past, companies that reported earnings below street estimates are facing severe selloffs on Dalal Street, causing their shares to trade at multi-month lows. Furthermore, weak management commentary post-results is further weighing on sentiments.
Zomato is one such stock that has corrected 10% in six trading sessions following the release of the company's Q3 performance. This has led to the stock dropping 26% in the current month so far. Despite such a steep drop, the stock is still trading at a PE of 313.
Likewise, JSW Energy’s stock tumbled 7% to hit a 10-month low of ₹453 after the company reported an over 27% YoY drop in its Q3FY25 consolidated net profit. Following the weak set of numbers, analysts trimmed the target multiples for the stock, leading to more selling pressure.
JIO Financial Services is the next stock on the list, which saw a sharp downturn post-modest numbers in Q3. In the current month, the stock has lost 22% of its value.
Other stocks such as Bosch, Varun Beverages, BHEL, Info Edge, United Spirits, REC, SAIL, HAL, ABB India, Siemens, Tata Power, DLF, and PFC are all down between 10% and 20% in January so far.
While some companies reported better-than-expected numbers in the December quarter, the results don't match the rich valuations at which the stocks are trading, which also led to the sharp fall.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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