IRFC, RVNL, Adani, SJVN, Cochin; Nifty Midcap Nosedives 1,090 Pts, Nifty Smallcap Below 15,000 - Explained Why

Sensex and Nifty are in a sea-saw on Wednesday as sentiments turned volatile with massive bearish trends seen in midcap and smallcap stocks. Nifty Midcap nosedived by as much as 1,093.4 points to an intraday low of 46,993.45, and Nifty Smallcap erased its 15,000 mark. Heavyweights like Adani Power, IRFC, RVNL, NHPC, Cochin Shipyard, NALCO, Suzlon, and SJVN were among the top laggards.

Investors are cashing in their gains after market watchdog Sebi revised rules for investing in smallcaps and midcaps.

Nifty Midcap Index:

Nifty Midcap 100 index traded at 46,995.20, down by 1,091.65 points or 2.27%. The index was near its intraday low of 46,993.45. Overall, the index nosedived by 1,093.4 points.

In percentage terms, Sona Blw Precision Forgings took the most hit as its stock price tumbled by 6.80% followed by Bharat Dynamics which shed 6.04%, NHPC down by 5.19%, RVNL down by 5.2%, and TTK Prestige down by 5%.

Other major stocks like Adani Power, IRFC, JSW Energy, and Mazagon Dock also plummeted by 4.5-5%. Meanwhile, other PSUs and private companies Fortis Healthcare, AB Capital, PFC, Torrent Power, Yes Bank, FACT, and Paytm also shed 4-4.5%.

Among the gainers were Tata Elxsi, APL Apollo, and Oberoi Realty rising by 1% to 1.5%.

Nifty Smallcap Index:

Erasing its 15,000 levels, the Nifty Smallcap 100 index fell by overall 455.05 points to hit an intraday low of 14,637.05 in the session so far. The index dipped by 454.45 points or 3.01% to trade near its day's low to 14,637.65.

Data Patterns was the top laggard in Nifty Smallcap with a downfall of 6.9% followed by NMDC Steel which plunged by 6.5%. Stocks like IRB, Cochin Shipyard and Sonata Software dived by 5-5.5%.

While stocks like Medanta, Indian Oil, Jyothy Lab, Kalyan Jewellers, SJVN, MRPL and Suzlon dropped by 4.5-5%. Other stocks like Tejas Network, Central Bank of India, Bikaji, HUDCO, Redington, KEI, and RITES slipped by 4-4.5%.

Among the gainers were Intellect Design Arena, Natco Pharma, and Birlasoft.

Why Are Midcap, Smallcap Stocks In Free Fall?

Gaurang Shah, Senior Vice President, Geojit Financial Services said, excessive liquidity drove up midcap and smallcap stock prices, often exceeding their justified values based on earnings. The surge in funds flowing into these segments compelled fund managers to invest, further inflating valuations. Authorities have acknowledged the situation and proposed potential regulations.

Earlier, market regulator Sebi revised rules for mutual funds investment in small-cap stocks amid rising concerns about stretched valuations for this segment.

On this Mukesh Kochar, National Head, AUM Capital said, "This is a welcome move if done as this will help the fund managers in reducing the downside risks of the portfolio in a market like this."

Kochar added, "The AUM of small-cap funds has grown more than manageable without impacting cost on both sides and hence, it is prudent to allocate some portions of the fund to larger companies to manage liquidity and reduce impact cost. Many fund houses have restricted new flows in their small-cap fund and that is good, although this must have been done a little early. SEBI is working in the interest of the investors for the long term and we appreciate the same."

Further, Shah added, "Given the historical volatility of small and midcap stocks, it's crucial for investors to exercise caution in allocating funds, whether directly in stocks or through mutual fund SIPs. Investors should be prepared for the inherent volatility in small, mid, and microcap stocks, as corrective phases have occurred before. Regulatory steps aim to safeguard the interests of small retail investors."

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