Stock Market Crash: India’s small-cap and midcap equities have just experienced their largest drop since the Covid market disaster in March 2020, leaving ordinary investors bruised and portfolios in the red. February was a bloodbath as panic-selling swept the broader market, with the BSE Smallcap index dropping 14%—its first double-digit monthly loss since the 1929 crash—and the Nifty Midcap 100 falling 10.8%.
Out of the 938 stocks on the BSE Smallcap index, 321 fell more than 20% in a single month, including Vakrangee, Zen Technologies, Oriental Rail Infra, and Suratwwala Business Group, which fell 40% to 66%. The devastation goes even deeper—243 smallcaps have lost more than half of their value since their 52-week highs, leaving portfolios in shambles.
Last week, the Nifty Midcap 100 fell to its lowest level since March 27, 2024, while the Nifty Smallcap 100 dropped 3% to its worst close since March 19, 2024. Investor mood is deteriorating as continuous selling, negative global cues, political uncertainty, and liquidity problems in small and midcap equities heighten fears that the worst is yet to come.
High-flying small caps are currently in freefall
Small-cap stocks suffered the brunt of the sell-off, losing significant market value and leaving retail stock portfolios in the red. Small-cap stocks, which were once high-flying, have now entered negative territory, with some dropping by up to 70% from their one-year highs. Following an 11% correction in January, the Nifty Smallcap 250 index fell nearly 13% in February. The February dip is also the largest monthly drop since March 2020, when it fell 34%, showing investors’ overall pessimistic stance towards small-cap equities.
According to Trendlyne data, 177 components of the Nifty Smallcap 250 index had 10% to 34% correction in February. Natco Pharma came as the top laggard, shedding 34.7% of its value in a single month, the largest decline since August 2017, when it fell 26%. PTC Industries, Ircon International, Sun Pharma Advanced, Shipping Corporation, JBM Auto, BEML, Sonata Software, R R Kabel, Data Patterns, and Concord Biotech were the next worst performers, with Kirloskar Oil Engines down 34%. In addition, 16 additional stocks plummeted 20% to 33.8% in February.
Analysts predict market volatility to prevail in the short term, and they believe that large-cap stock valuations have grown fairer than those of mid-and-small-cap companies. They encourage investors to take advantage of the current drop by purchasing high-quality stocks with good fundamentals.
A technical breakdown indicates more pain ahead, more Stock Market Crash
Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research at SBI Securities, stated that both the Nifty Midcap 100 and Smallcap 100 indexes had breached critical technical levels. “The Nifty Midcap 100 has fallen below its 100-week EMA (Exponential Moving Average) for the first time since August 2020, while the Nifty Smallcap 100 has been below its 100-week EMA for three weeks running. The 14-week RSI (Relative Strength Index) is in a negative zone, indicating more weakness.”
The indexes’ key support levels are listed below:
- Nifty Midcap 100: Immediate support at 47,000, with a further decline likely sending it to 46,400. Resistance is observed at 48,900.
- Nifty Smallcap 100: Support at 14,100, resistance at 15,200.
Rajkumar Singhal, CEO of Investment Advisors, ascribed the sell-off on disappointing profits. “Small-cap values remain higher than long-term averages, and earnings downgrades have compounded the selloff. While earnings may rise by 2025, investors must take a selective, bottom-up approach, focussing on high-quality companies with strong balance sheets.
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