Stock market today: Why small-cap index today crashed over 1000 points — explained with 5 reasons | Mint
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Business News/ Markets / Stock Markets/  Stock market today: Why small-cap index today crashed over 1000 points — explained with 5 reasons
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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: The small-cap index today opened lower and went on to touch an intraday low of 44,476 mark, logging an intraday loss of around 1175 pointsPremium
Stock market today: The small-cap index today opened lower and went on to touch an intraday low of 44,476 mark, logging an intraday loss of around 1175 points

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.

Also Read: BSE PSU index sinks 4%. Is the party over for these stocks?

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.

Also Read: Profit-booking in midcaps and smallcaps; analysts advise to be ‘selective’

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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ABOUT THE AUTHOR
Asit Manohar
Chief Content Producer at Live Mint Digital Team
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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Published: 12 Feb 2024, 01:19 PM IST
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