Small Cap And Mid Cap Downturn: How Much Could It Drop?

The blue-chips in India saw minimal movement on Thursday, while the small- and mid-caps saw gains as the market took a break following the previous session’s steep decline due to concerns over the outcomes of a stress test on specific mutual fund schemes.

As of now, the blue-chip Nifty 50 was in green at 22,147, while the BSE Sensex was up 0.67% at 73,167.

The larger, more domestically oriented mid-caps and small-caps had massive increases of 1.65% and 2.91%, respectively.

They had their worst session in the past two years on Wednesday, and since their record highs on February 8, they have dropped 13.5% and 7.4%, respectively. During the same time frame, the Nifty has barely altered.

A lot of market players attributed the general market upswing that occurred over the majority of last year and the beginning of this year to investors disregarding fundamentals. The nation’s market watchdog referred to it as froth.

The markets will now be driven by logical values rather than wild excitement as this large fall in mid and small-cap scared few euphoric investors. Beginning on March 15, small- and mid-cap mutual funds will release the findings of a stress test that will determine how well they can resist unexpected demands for redemptions.

How much the market could fall?

The Nifty exhibited minimal impact yesterday when considering longer-term data. The chart illustrates Nifty 50 trading within a rising channel just above the 50-day EMA, without significant signs of weakness. Despite this, the India VIX remains relatively high due to the upcoming elections. Additionally, the average true range, a measure of volatility, is trading at elevated levels.

Addressing the question of potential market decline, the current support levels stand at 13,130 for the small-cap 100 index and 43,300 for the mid-cap index. Today, all three indices are rebounding from these support levels, indicating a potential end to the panic, with investors gradually overcoming their fear of a market crash. The factors contributing to the market decline are deemed insufficient to trigger a substantial downturn in Nifty 50.

We anticipate that today’s low is likely to remain a historical point or, in the event of negative news, may touch the next support level mentioned above. However, we don’t expect the markets to surge wildly from these levels, as investors are increasingly cautious and discerning about market movements.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.