Posted on February 24, 2025, by Niftynews
The broader market selloff extended for the second consecutive session on February 24, 2025, with the Nifty Midcap 100 and Nifty Smallcap 100 indices plunging as much as 2% each. The ongoing market downturn was fueled by a mix of factors, including concerns over US President tariff policies, persistent foreign institutional investor (FII) outflows, and weak global cues, all amplifying market volatility.
Nifty Midcap & Smallcap Indices Struggle Amid Market Weakness
Despite the broader market slump, stocks from the midcap and smallcap sectors witnessed a notable decline. The Nifty Midcap 100 index has been hit particularly hard, registering a 13% decline this year, significantly underperforming the benchmark Nifty 50 index, which has lost just 4% over the same period. Similarly, the Nifty Smallcap 100 index has fared even worse, plummeting by over 17% since the start of 2025.
FII Outflows and Global Market Weakness Contributing to the Downturn
The persistent FII outflows have continued to weigh down the broader market, with weak global cues exacerbating the situation. Market sentiment has also been influenced by the jitters surrounding the US President’s tariff policies, which are contributing to increasing volatility. These factors have collectively caused a broad-based selloff in the midcap and smallcap space, dragging the Nifty Midcap 100 and Nifty Smallcap 100 indices down further.
Stock Movements in Nifty Midcap 100 and Nifty Smallcap 100 Indices
While the broader market faces heavy losses, some stocks from the Nifty Midcap 100 and Nifty Smallcap 100 indices bucked the trend and posted gains.
- Top Gainers in Nifty Midcap 100: Federal Bank, Colgate Palmolive, and Lupin were among the top gainers, showing some resilience in an otherwise weak market.
- Top Losers in Nifty Midcap 100: Mphasis, Paytm, and KPIT Technologies led the declines in intra-day trade, reflecting the ongoing weakness in the midcap space.
In the Nifty Smallcap 100 segment:
- Top Gainers in Nifty Smallcap 100: Five Star, Manappuram Finance, and 360 One saw some upward movement, despite the broader market weakness.
- Top Losers in Nifty Smallcap 100: Tejas Networks, Zensar Technologies, and Amber Enterprises were the hardest hit, underscoring the struggles in the smallcap sector.
Expert Opinions on Midcap and Smallcap Valuations
The Nifty Midcap 100 and Nifty Smallcap 100 indices continue to be under scrutiny due to their high valuations. Experts at Kotak Institutional Equities have raised concerns, warning that despite the recent market correction, the valuations of midcaps and smallcaps remain stretched and are dangerously close to bubble territory.
“Valuations remain fair-to-full-to-frothy across most parts of the market,” analysts at Kotak noted. They caution that midcap, smallcap, and momentum-driven ‘narrative’ stocks are likely to face deeper corrections in the near term, with further sharp declines potentially on the horizon as investors reassess risk and adjust their positions.
Gautam Duggad Warning on Premium Valuations of Midcaps and Smallcaps
Gautam Duggad, Head of Research – Institutional Equities at Motilal Oswal, has also expressed concerns over midcap and smallcap premium valuations during his conversation with CNBC-TV18. According to Duggad, both the midcap and smallcap indices are currently trading at a premium to the Nifty index, and this trend has been observed in relation to their historical averages.
- The Midcap index is trading at a 5% premium to Nifty, at a 28.5x price-to-earnings ratio.
- The Smallcap space faces challenges due to weak earnings performance and future outlook, and valuations are under pressure.
Duggad suggests that while the broader market is expected to deliver 13-14% earnings growth in the near term, market expectations are still high at 20%, signaling potential downside risk for midcaps and smallcaps.
Market Outlook and Conclusion
The broader market downturn is expected to persist in the near term, with midcap and smallcap stocks likely to remain under pressure. FII outflows, US tariff concerns, and weak global cues are contributing to market volatility. Investors should exercise caution, especially with midcap and smallcap stocks.
Given the premium valuations and the warning signs from experts, investors are advised to reconsider their positions in midcaps and smallcaps. Those holding positions in these segments should closely monitor market movements and keep an eye on valuation corrections. A more cautious approach is recommended as the market navigates through this uncertain phase.
