The Nifty Midcap 100 index has declined around 8% in March so far, while the Nifty Smallcap 100 index tumbled nearly 7%. Benchmark index Nifty 50, meanwhile, has declined more than 7% during the same period.
Earlier yesterday, when Sensex and Nifty staged a sharp rebound and closed in the deep green, broader markets extended their decline to close in the red. Bandhan Bank, The Great Eastern Shipping Company, FirstCry-parent Brainbees Solutions and Laurus Labs were among the top small-cap losers, falling up to 8%. Adani Total Gas, KPIT Technologies, National Aluminium Company (NALCO) and Fortis Healthcare were among the top mid-cap losers, plunging up to 7%.
Risk off sentiment pushes broader markets down
The sharp decline in the broader markets indicates that risk-off sentiment, geopolitical uncertainty and sustained foreign investor outflows have accelerated selling pressure in the broader market, said Aakash Shah, Technical Research Analyst at Choice Equity Broking.
“From a structural standpoint, broader markets typically witness sharper corrections during risk-off phases, as investors rotate capital toward large-cap defensives. Recent geopolitical tensions, rising crude prices, and persistent FII selling have further weakened sentiment, triggering deeper drawdowns in mid and smallcap stocks compared with frontline indices,” the analyst said.
Valuations still high
Tanvi Kanchan, Associate Director at Anand Rathi Share & Stock Brokers, meanwhile noted that small-caps delivered 47% returns in 2023 and 25% in 2024, pushing valuations to levels that earnings simply couldn’t justify. In Q2 FY26, nearly 40% of small-cap stocks missed earnings expectations, she added.“Even after the recent correction, Nifty Midcap 100 and Nifty Smallcap 100 trade at 28.3x and 25.9x P/E — premiums of 26% and 50% respectively over their long-term averages,” she said, adding that these are not “cheap markets” yet.
What lies ahead?
The near-term triggers are overlapping and severe, Kanchan noted, listing the skyrocketing oil prices, rupee hitting fresh all time lows, record FPI outflows and other factors to be under the radar. However, the structural domestic story remains intact, according to the analyst.
RBI’s repo rate cuts last year, along with recent GST reforms and income tax rate cuts, are providing a structural domestic buffer, she said. “Resolution of US tariff policy uncertainty could act as a key catalyst for a faster and broader recovery in the small and midcap space. However, broad-based rallies are unlikely unless earnings growth recovers meaningfully,” Kanchan said.
The prudent approach for investors is selective stock-picking focused on companies with strong balance sheets and clear earnings visibility, particularly in financials, consumption, and autos, where the valuation correction has been driven by sentiment rather than fundamental deterioration, she added.
The recent sell-off this month has created opportunities for long-term investors, said Vinod Nair, Head of Research at Geojit Investments. “That said, the near-term trend is expected to remain weak this month, with the assumption that the current conflict will not extend into the next month,” he added.
Technical view on broader markets
The Nifty Smallcap 100 index is continuing its lower-high, lower-low structure on the daily chart, Shah from Choice Equity Broking said. Price remains below key moving averages, indicating sustained bearish momentum, he added.
“Immediate support is placed near 15,300–15,000, while a decisive breakdown below this zone could extend the decline toward 14,800. On the upside, 16,500–16,600 now acts as a strong resistance zone where supply pressure is likely to emerge,” the analyst said.
For Nifty Midcap 100 index, Shah said that it too has slipped below major moving averages, reflecting weakening trend strength. “Immediate support is visible around 53,500–52,800, while the broader structural support remains near 52,000. On the upside, 56,000–56,700 now acts as a key resistance cluster,” he said.
According to Shah, the broader markets technically remain in a corrective phase within a longer-term structural uptrend. “Sustained weakness below key supports could trigger further downside, while stability in global cues and easing geopolitical risks may help the indices form a base-building phase before the next directional move,” he added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)