On March 6, the broader market experienced a downturn as investors engaged in heavy selling of midcap and smallcap stocks, opting to book partial profits amid concerns of stretched valuations. The Nifty Midcap 100 index declined nearly 2 percent, while the Nifty Smallcap 100 index plummeted around 3 percent.
The significant selloff in the small and mid-cap segments resulted in a notable imbalance in market breadth, with approximately five stocks falling for every one that rose. Specifically, 522 shares registered gains, while a staggering 2,681 shares incurred losses, with 64 remaining unchanged. Despite the market’s weakness, the benchmark Nifty and Sensex indices performed relatively better, experiencing declines of just 0.2 percent and 0.3 percent, respectively.
The recurrent episodes of selloff in the broader market align with analysts’ warnings about frothy valuations following the recent market exuberance. Over the past month, the Nifty Midcap 100 index has declined by 1.2 percent, while the Nifty Smallcap 100 index has corrected by approximately 5.5 percent.
Although Anirudh Garg, a fund manager at Invasset PMS, maintains an optimistic outlook on the broader market over a 2-3-year horizon, he emphasizes the importance of a timely and adequate price correction to realign market valuations. Garg’s analysis suggests that both the midcap and small-cap segments appear overvalued, prompting a cautious approach towards these segments. Consequently, he advises investors to avoid mid and small-caps for the time being.
Furthermore, the Reserve Bank of India’s intervention in IIFL Finance and JM Financial sparked a meltdown in these two counters, resulting in them becoming the biggest losers in the broader market.
IIFL Finance suffered a steep decline of 20 percent for the second consecutive session following the Reserve Bank of India’s (RBI) imposition of a ban on the company from issuing gold loans. Similarly, JM Financial experienced a significant downturn of 19 percent after the RBI imposed restrictions on loan disbursements by the company.
In terms of sectors, media, power, and realty sectors were among the worst hit, witnessing declines of 2-3 percent.