Sensex down by 906 points, Nifty by 338: Markets slide amid bubble warnings in small, mid-cap segments

The fall in the market on Wednesday came even as the domestic consumer priced-based inflation (CPI) for February remained unchanged at 5.09 per cent, compared to 5.1 per cent in January. “In contrast to the global uptrend, unfavourable risk-reward balance of mid and small-cap stocks, fuelled by prolonged premium valuations, has aggravated the downfall,” said Vinod Nair, Head of Research, Geojit Financial Services.

Earlier this week, Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch said the regulator cannot allow bubbles to build up in small and mid-cap funds. The regulator has also asked mutual fund houses to conduct stress tests on small and mid-cap funds and disclose the results by March 15.

Recently, AMFI had written to mutual fund trustees to take measures to protect the interest of investors of small and mid-cap schemes, which have seen heavy inflows in the recent past. A few mutual funds have announced to limit the inflows into their small and mid-cap funds on worries of excessive valuation in these segments. “The announcement by various fund houses to cap inflows into small and mid-cap funds must have sent a negative message. Investors such as ultra HNIs must have taken a call to reduce their position from these schemes,” said Shrikant Chouhan, Head Equity Research, Kotak Securities.

While the BSE SmallCap declined 5.11 per cent, the BSE MidCap tanked 4.2 per cent on Wednesday.

According to Chouhan, the fall in the market was also due to profit booking during the financial year closing. After the Sensex broke the crucial level of 73,300 and Nifty the 22,200 mark, investors started selling heavily, he said.

“Nifty witnessed massive sell-off as investors/traders rushed to take whatever profits were left on table to offset the losses on their recent trades. Nifty made a long-range bear candle on March 13. 21,750-21,860 band will now be crucial to be protected in case the uptrend in the Nifty has to continue. On rises, 22,400-22,460 could now be tough to breach in the near term,” said Deepak Jasani, Head of Retail Research, HDFC Securities. On Wednesday, oil prices climbed amid expectations of robust global demand, particularly from the United States, one of the world’s largest consumers.

“Despite somewhat persistent US inflation, there was no significant alteration in expectations that the Federal Reserve might initiate rate cuts soon,” Kotak Securities’ Chouhan said. CPI inflation in the US rose by 3.2 per cent on a year-on-year basis in February 2024, higher than an estimated 3.1 per cent increase.

Among sectors, all the major sectoral indices traded in the red but reality, metal, media and energy indices, shed over 5 per cent. Within the BSE firms, ITC, ICICI Bank, Kotak Mahindra Bank, Bajaj Finance and HDFC Bank were the top gainers.

On Wednesday, foreign portfolio investors (FPIs) offloaded Rs 4,595.06 crore worth of equities whereas domestic institutional investors (DIIs) purchased Rs 9,093.72 crore of local shares, according to the BSE’s provisional data.