The domestic equity markets once again plunged lower with the BSE small-cap and mid-cap indices down 4% and over 3%, respectively. The BSE Smallcap Index is now down over 12% YTD while the BSE Midcap Index has nosedived over 10% YTD. The Nifty Midcap 100 dropped 2.9% to an intra-day low of 51,709.15 level. The Nifty 50 and Sensex are both down more than 1%.
The primary three reasons why the sell-off continues across the mid and small-cap space include
Disappointing Q3 earnings
Quarterly earnings for the third quarter have been far from encouraging. While most of the muted performance had been factored in, it sure is a sentiment dampener. The asset quality concerns in the financial space is among the dominant concerns in the market at the moment.
FII sell-off continues
Another factor that continues to keep investors worried is the FII selloff seen so far. FII selling in January has been the highest in 11 years with outflows totalling nearly Rs 70,000 crore so far this month.
Budget expectation
The Union Budget for FY26 is set to be announced in less than a week’s time and all eyes are on the steps that the Finance Minister is contemplating. There are expectations that Finance Minister Nirmala Sitharaman may undertake steps to reduce capita gains tax, but if the street is disappointed it may exacerbate the pain further.
Tariff war impact
There is uncertainty amongst investors on the potential impact of the ongoing tariff war. The Policy moves are perceived to have a negative impact on global markets including India. This is also keeping investors on tenterhooks and the sharp decline in midcap and smallcap stocks is seen as more of a cautious approach from investors. Investors do not want to commit cash, given the developing dynamics and the sentiment as a result has taken a beating.
“The market sentiment has turned weak. Sustained FPI selling (Rs 69000 crores in January, so far) is impacting the market. Despite DII buying of Rs 67000 crores in January, so far, the market is under pressure. A major concern is that President Trump is coming up with new threats like the 25 % tariff on Columbia for its refusal to take back deported illegal immigrants,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.