Market Correction Hits Mid and Smallcaps
The Indian stock market witnessed a correction in the mid and smallcap segments on Thursday afternoon, with the Nifty Midcap 100 and Smallcap 100 indices plunging over 1% and nearly 2%, respectively. This decline followed a similar trend in the broader market indices, which also fell by over 1% and nearly 2% in the afternoon deals.
Analysts attributed the fall to the US Federal Reserve's decision to cut interest rates by 50 basis points in a meeting held late Wednesday evening. This move sparked concerns about potential unwinding of carry trades, leading to a cautious sentiment among investors.
Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities, believes that the next 3-5 trading sessions will be crucial for the global market. Investors will closely monitor any further signals of carry trade unwinding following the Fed's rate cut.
In the domestic market, Chadawar anticipates some near-term correction in specific pockets, with flows shifting towards large-cap stocks.
The correction primarily impacted the mid and smallcap space, where valuations had become stretched in certain sectors like defense, railways, and capital goods. These sectors had witnessed significant rallies over the past 2-3 years, raising concerns about overvaluation.
Analysts believe that this correction presents a buying opportunity for long-term investors seeking high-quality stocks at attractive valuations. However, they also caution that the correction could extend further in the near term.
The Nifty Midcap 100 index saw 75 stocks decline and 25 stocks advance. Vodafone Idea and Indus Towers were the top laggards, declining by over 11%. The telecom sector faced pressure after the Supreme Court reportedly rejected telecom companies' plea on the re-computation of adjusted gross revenues (AGR).
Similarly, the Nifty Smallcap 100 index witnessed a decline in 89 stocks, while only 11 stocks advanced. Chambal Fertilizers and IIFL Finance were the top losers, falling by up to 7.56%. The BSE Midcap and Smallcap indices also witnessed declines, with Vodafone Idea, Oil India, Nava, and Kennametal India among the top losers.