Why are mid, small-caps bleeding? Indices crash up to 4% - Swiggy, Meesho, Vedanta Aluminium, MCX lose big
The Indian stock market witnessed an across-the-board selloff on Friday, 23 October, with the benchmarks, the Sensex and the Nifty 50, falling up to 1.4% during the session.
However, the selloff was deeper in the mid- and small-cap segments. The BSE 150 Midcap index crashed 3.2%, while the BSE 250 SmallCap Index crashed 3.6% during the session.
Top drags on the midcap index
Swiggy, Meesho, Vedanta Aluminium Metal, One 97 Communications (Paytm), and BHEL were among the top drags on the BSE 150 Midcap index.
Top drags on the smallcap index
Delhivery, HFCL, Ather Energy, RBL Bank, IIFL Finance, and Apar Industries were among the top drags on the BSE 250 Smallcap Index.
Why are mid, small-caps bleeding?
While the market is witnessing an all-round selloff, the mid and small-cap segments are bleeding more due to their higher valuation amid persistent geopolitical concerns, elevated oil prices, and rising bond yields.
"Mid-cap and small-cap stocks are bleeding largely because of elevated valuations. Valuations in these segments had become unjustifiably high, driven primarily by liquidity. Look at the mutual fund inflows into mid-cap and small-cap funds in September," said V K Vijayakumar, Chief Investment Strategist at Geojit Investments.
"New investors are not particularly concerned about valuations. They believe mid-cap and small-cap stocks will outperform over the long term and, therefore, are willing to pay any price. However, that is not what market experience suggests," said Vijayakumar.
As the market is witnessing a widespread selloff, the question arises: What should investors do?
Experts say the answer to this question rests on one's risk appetite.
"Whether you invest in large-cap, mid-cap, or small-cap stocks depends largely on your risk appetite. Earnings growth across all three segments has been reasonably satisfactory. It is external factors and technical factors that are driving the current market correction," said Pankaj Pandey, the head of research at ICICI Securities.