The declining interest of investors in small companies became evident on Monday as BSE Midcap Index The benchmark also fell 1.4% to 20,999.37 and the BSE Smallcap index fell 3% to 23,422.16. Sensex ended with a profit. The Sensex closed 0.46% higher at 51,597.84.
“Selling is happening in small quantities as there are no buyers so short selling also leads to big price correction,” said Siddharth Bhamre, Head of Research, Broking. “One should avoid the place altogether and let the market change direction first.”
After the Nifty last week, there was a technical fault in the mid and smallcap indices as well. The broader market has been in a bear market zone for a few weeks now, meaning mid- and small-cap indices are down more than 20% from their record highs. The BSE small-cap index is down 25% from its all-time high of 31,304.44 on January 18 this year.
The BSE Midcap index is down 23% from its record high of 27,246.34 hit on October 19 last year. The Sensex is down 17% from its lifetime high of 62,245.43 – also hit on October 19, 2021.
Another 10-15% fall in midcap and smallcap indices cannot be ruled out, said Rohit Srivastava, founder, Indiacharts.com.
Beneath the surface, the sell-off has been far more brutal with many stocks falling 60-80% from their highs. Analysts said the risk-off sentiment is likely to slow down inflows into equity schemes through systematic investment plans (SIPs).
“The SIP returns in the last two years are zero and gradually this will slow down the flow of funds in the SIP,” Bhamre said. “Retail investors are not comfortable in the market as it is a bearish market for them so there are people who are stopping SIPs because they are worried about infusion of fresh money.”
Money managers said the risk reward is favorable for investing in large caps in a rising interest rate environment as compared to mid or small caps.
“In the slightly longer term, it is not clear whether the global recession is complete or not, but in the very short term these indices look oversold as per the indicators. There is a case for a short term bounce, but it may not last for some day,” said Srivastava
“We may have another 6-7 months of bear market in which we may see bear market rallies but the trend will remain bearish.”