Since the outbreak of the war on February 27, nearly 1,100 stocks out of 1,263 scrips in the BSE Smallcap index have witnessed the correction. In this, 434 stocks (approximately 35%) have declined in the double digits. The top 10 losers in the pack are Aqylon Nexus, Infobeans Technologies, SEPC, VL E-Governance & IT Solutions, Ecos (India) Mobility & Hospitality, Rain Industries, Digitide Solutions, Agarwal Industrial Corporation, SpiceJet and Sukhjit Starch & Chemicals and they have fallen between 46% and 25% in three weeks ended March 20.
The other widely tracked stocks that fell in double-digits include, Redington, Signatureglobal, Sapphire Foods, India Tourism Development Corporation, Atul Auto, Texmaco Rail & Engineering, Engineers India, Shipping Corporation Of India, CE Info Systems, Nazara Technologies, Rites, and Amara Raja Energy & Mobility.Sudeep Shah, Vice President & Head of Technical and Derivative Research Desk at SBI Securities said the recent correction in the smallcap index, though steep, is largely structural in nature following the significant outperformance witnessed during 2023–2024. “The rally during that phase was predominantly narrative-driven, with earnings failing to keep pace with valuations. As a result, the segment has undergone a meaningful valuation reset, leading to a broad-based de-rating across midcap and smallcap stocks, many of which have corrected by nearly 45–50%,” he added.
The intensity of the correction has further increased amid escalating geopolitical tensions involving the US, Israel, and Iran, a sharp rise in crude oil prices, and sustained FII outflows—factors that have collectively dampened risk appetite, this analyst added.
Smalls caps in aggregate are trading at a premium to their historical valuations and to large caps, said UTI AMC MD & CEO Vetri Subramaniam, adding that he remains cautious on the segment with very little margin of safety. “The issue is not that of their market capitalization per se. Large caps typically correlate better with fundamentals such as market dominance, access to capital, better bargaining power which is reflected in cash flow and balance sheet, depth and breadth of management and superior governance via the quality of the company’s Board,” he said.
Single-digit slips
The index saw 52% or 657 stocks slipping into single-digit losses. Some of these losers include BEML, Cyient, Balu Forge Industries, Anand Rathi Share & Stock Brokers, NMDC Steel, Sobha, CSB Bank, Mishra Dhatu Nigam, Ujjivan Small Finance Bank, DCB Bank, One Mobikwik Systems, Birlasoft, Nuvama Wealth Management, Garden Reach Shipbuilders & Engineers (GRSE), Godfrey Phillips India, CarTrade Tech, Avanti Feeds, Wework India Management, Honasa Consumer and PVR Inox.
Positive vibes
Amid the sell-off, some stocks excelled with returns up to 55% while others managed to hold on to their gains. Nearly 13% or 167 scrips were in the green in this period with just about two dozen counters delivering double-digit returns.
The top 10 gainers are Emmvee Photovoltaic Power, Deep Industries, Sterlite Technologies, Avadh Sugar & Energy, Aether Industries, Shaily Engineering Plastics, Bluestone Jewellery And Lifestyle, Atlanta Electricals, Websol Energy System and Jindal Poly Films, which surged between 17% and 55%.
Other widely tracked stocks that stood out include Happiest Minds Technologies, Jain Resource Recycling, The Karnataka Bank, Zydus Wellness, Butterfly Gandhimathi Appliances, Urban Company and Balrampur Chini Mills with over 3% returns.
Also read: 83% of BSE 500 stocks plunge up to 35% amid Mideast war. Do you own any?
Outlook
Shah expects largecaps to likely regain investor preference given their relative stability and resilience in volatile environments and geopolitical uncertainties. In his view, a meaningful shift back towards midcap and smallcap segments will depend on a visible improvement in earnings trajectory.
FII flows will be guided by signs of earnings revival and macroeconomic stability, especially in the form of softer crude prices and a stable currency environment.
The FII’s have sold domestic equities worth Rs 1,18,376 crore in 2026, so far.
What should investors do?
Shah recommends a structured and disciplined portfolio approach, with a clear tilt toward largecaps for stability, complemented by selective exposure to midcaps and smallcaps.
“Incremental allocation to the broader market should be made on declines, focusing on companies where valuations have normalized and earnings visibility supports the current price structure. We recommend a buy-on-dips strategy across sectors such as automobiles, pharmaceuticals, capital goods, and PSU banks, which have demonstrated notable relative strength and strong price momentum in the period leading up to the onset of the geopolitical tensions. These sectors continue to exhibit resilience in underlying trends, making them well-positioned to outperform once market stability returns,” the SBI Securities analyst said.
UTI AMC MD & CEO has flagged limited margin of safety in the small-cap segment, urging investors to remain cautious despite recent corrections. But after the breadth of the recent sell-off, UTI’s fund managers are beginning to identify select bottom-up opportunities in the small cap space, he opined.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)