Stock market today: Why small-cap index today crashed over 1000 points — explained with 5 reasons
Stock market today: Fall in the small-cap index today can be attributed to profit-booking after strong performance, overvaluation compared to larger counterparts, Middle East crisis, less liquidity, and sell-off in PSU, banking, railway, and defense stocks, say experts
Stock market today: After a strong rebound on Friday's session, Indian stock market once again slipped into the red territory during Monday deals. All major indices are trading red but small-cap and mid-cap indices lost more than the key benchmark indices. The small-cap index received maximum beating as the index lost over 1000 points during the intraday trade. The small-cap index today opened lower and went on to touch an intraday low of ₹44,476 which is around 1175 points lower from its Friday close of 45,650 mark.
According to stock market experts, small-cap stocks were trading at much higher valuations against their fair price and profit-booking was overdue in the segment. apart from this, profit-booking getting more dip in PSU, banking, defense, power, and railway stocks further pulled down the small-cap index. The execution would be the key parameter for small-cap and mid-cap space and a slight dip in their earnings may further further actuate market investors to offload their shareholding in mid and small-cap space.
Why small-cap index is nosediving?
On why stock market investors are punishing small-cap stocks severely, Manish Chowdhury, Head of Research at BP Equities said, "There has a been a correction in the mid and small-cap space as valuations looked stretched in select pockets. There has been a sharp drawdown in PSU stocks which we felt had run ahead of their fundamentals, especially in the power, railways, defense, and PSBs space and a near-term top for these stocks looks in place. We believe that execution would be a key parameter for stocks in the mid and small-cap space going forward as a slight miss on the earnings front could be severely punished by markets due to their premium valuation vis-à-vis the historical metrics."
Top 5 reasons for fall in small-cap index
Listing out the major reasons for the sharp fall in small-cap index, stock market investors listed out the following top five reasons:
1] Profit-booking after big upside: "After a period of strong performance, investors might be selling small-cap stocks to lock in profits and look for more stable investments," said Amit Goel, Co-Founder & Chief Global Strategist at Pace 360.
2] Overvalued against other counterparts: "Small-cap stocks are overvalued compared to their larger counterparts, leading to a correction in the index," said Amit Goel.
3] Middle East crisis: "During periods of economic uncertainty or geopolitical tensions, investors tend to favor large-cap companies over small-cap. This shift in sentiment can lead to selling pressure in the small-cap space," said Amit Goel.
4] Less liquid nature: "Small-cap stocks are generally less liquid than large-cap stocks, which can make them more volatile and susceptible to sudden price swings," Amid Goel added.
5] Sell-off in PSU, banking, railway, and defense stocks: "A good number of small-cap PSU, banking, defense, and railway stocks were already under sell-off stress. After the Nifty 50 index failed to cross the 22,000 hurdle on many occasions, profit-booking triggered in these segments that pilfered in other segments as well. Now, the above-mentioned segments have further extended their bear run that intensified selling in the entire small-cap index," said Avinash Gorakshkar, Head of Research at PProfitmart Securities.
Disclaimer: The views and recommendations above are those of individual analysts, experts, and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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