Caution On Small, Mid Caps Turns Investors Wary Of Indian Market — Key Reasons For Wednesday’s Fall
Nifty Smallcap 250 and Nifty Midcap 150—fell as much as 21.5% and 18.3%, respectively, from their previous peak last year.
The Indian stock market extended its fall on Wednesday as investors grew cautious about the domestic small and mid-cap stocks as they near the so-called bearish territory.
Indian benchmark indices — NSE Nifty 50 and 30-stock Sensex — fell as much as 0.96% and 1%, respectively, in Wednesday's trade. Nifty Realty, Media and Oil and Gas sectors fell the most.
The broader market tumbled over more than the benchmark indices as fund managers and analysts expect further downside for these stocks. The mid-cap index was down 2.7% while the small-cap index slipped by 3.4%.
Nifty Smallcap 250 and Nifty Midcap 150—fell as much as 21.5% and 18.3%, respectively, from their previous peak last year.
Despite the positive developments from the Union Budget and RBI rate cut, Indian stocks remained muted, with NSE Nifty 50 and BSE Sensex down over 2% since the budget.
Small, Mid Caps Likely To See More Downside
India's small and mid-cap stocks are poised for further downside, as these stocks are testing the entry into the bear market on muted earnings and peaking domestic flows, according to Bernstein Research.
The earnings growth and valuations, the flow cycle covering domestic and foreign inflows, and the investor sentiment looking at SIPs from the retail section are key triggers for Bernstein's cautious look.
The fall in small stocks has been sharp with foreign selling and domestic portfolio reallocation towards larger names, Bernstein said. The research firm does not expect these small caps to outperform large caps in 2025.
FII Selling Tops Rs 1 Lakh Crore
Foreign institutional investors' selling in the cash market topped Rs 1 lakh crore in 2025, according to the data from NSE, taking the selloff to worst in any year. Meanwhile, domestic investors bought Rs 99,380 crore in the cash market this year.
Foreign portfolio investors stayed net sellers of Indian equities for the fifth straight day on Monday, as they offloaded stocks worth approximately Rs 4,486.41 crore.
Foreign outflows are already at levels seen in previous intervals of FII selling, but the 2021-2022 period shows they have room to sell more, HSBC said in a report.
Global Uncertainties
US President Donald Trump unveiled plans to impose a 25% tariff on all imports of steel and aluminum. He said the tariffs would apply to import of the metals from all countries.
This comes after a series of threats against Mexico, Canada and China. While tariffs on Mexico and Canada are on hold, China’s retaliatory tariffs on US goods have taken effect.
Since November last year, the dollar index — which tracks the greenback's performance against a basket of 10 leading global currencies — has risen nearly 5%.
The uncertainty around tariffs and their potential impact on the global macro scenario remains a key concern for all EMs, including India.
