Mid-cap, small-cap indices fall over 5% in two sessions

After hitting fresh all-time highs, both BSE Midcap and Smallcap fell over 5% in two sessions as investors booked profits after a sharp rally in the markets recently.

BSE Midcap fell over 550 points or 2.12% in early trade, while BSE Smallcap fell nearly 840 points or 2.84%. On Tuesday, BSE Midcap and BSE Smallcap lost 2% and 1.8%, respectively.

Mohit Nigam, Head-PMS, Hem Securities, said, “Following Tuesday’s move, investors should exercise caution before making fresh entry into mid and smallcap stocks.

Analysts say that among derivatives mid-cap and small-cap stocks, the price correction was sharp as opening long positions near all-time highs pushed down the indices.

Both the mid-cap and small-cap indices have outperformed the broader Sensex and Nifty indices with 47% and 63% gains respectively in 2021 so far. Both have risen by over 6% so far in October.

“Overall, we are still positive on small-cap and mid-cap over the long term, and believe any significant downside is a good opportunity to accumulate quality stocks. We believe that Companies in the chemicals, EVs, new age IT sector in the mid and small space will continue to outperform large-cap companies due to strong demand environment in these sectors,” the corporation said.

Vikas Jain, Senior Research Analyst, Reliance Securities, says that the second quarter results will be crucial for the next phase as any disappointment can lead to sharp profit-booking, so one has to be very selective and buy in stages of corrective action. Should do .

“After a sharp rally in mid-caps and small-caps, profit-booking is seen between them as valuations of many stocks have reached unrealistic levels. However, if we exclude some very expensive names, this correction provides a bottom-up opportunity given the higher discounts being offered and the pick-up in economic activity, festive mood and better demand backdrop. Balance sheets and cash flows continue to improve as corporates tighten costs and leverage. Going forward, Q2FY22 earnings distribution versus earnings expectation will provide further direction to the market,” said Sneha Poddar, AVP Research, Broking & Distribution, Motilal Oswal Financial Services.