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The Indian stock market witnessed an across-the-board selloff on Friday, 23 October, with the benchmarks, the Sensex and the Nifty 50, falling up to 1.4% during the session.
However, the selloff was deeper in the mid- and small-cap segments. The BSE 150 Midcap index crashed 3.2%, while the BSE 250 SmallCap Index crashed 3.6% during the session.
Swiggy, Meesho, Vedanta Aluminium Metal, One 97 Communications (Paytm), and BHEL were among the top drags on the BSE 150 Midcap index.
Delhivery, HFCL, Ather Energy, RBL Bank, IIFL Finance, and Apar Industries were among the top drags on the BSE 250 Smallcap Index.
While the market is witnessing an all-round selloff, the mid and small-cap segments are bleeding more due to their higher valuation amid persistent geopolitical concerns, elevated oil prices, and rising bond yields.
"Mid-cap and small-cap stocks are bleeding largely because of elevated valuations. Valuations in these segments had become unjustifiably high, driven primarily by liquidity. Look at the mutual fund inflows into mid-cap and small-cap funds in September," said V K Vijayakumar, Chief Investment Strategist at Geojit Investments.
"New investors are not particularly concerned about valuations. They believe mid-cap and small-cap stocks will outperform over the long term and, therefore, are willing to pay any price. However, that is not what market experience suggests," said Vijayakumar.
As the market is witnessing a widespread selloff, the question arises: What should investors do?
Experts say the answer to this question rests on one's risk appetite.
"Whether you invest in large-cap, mid-cap, or small-cap stocks depends largely on your risk appetite. Earnings growth across all three segments has been reasonably satisfactory. It is external factors and technical factors that are driving the current market correction," said Pankaj Pandey, the head of research at ICICI Securities.
Brent crude traded near $114 per barrel on Friday, keeping market sentiment fragile.
Market experts caution that, since oil prices have been rising for most of the year, the market outlook has become hazy. There could be brief relief rallies, but a sustained rally will occur only if oil prices fall, the rupee strengthens, and foreign portfolio investors return to the Indian market.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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