Bubble bath on Dalal Street: Small, midcaps catch a cold
equity benchmarks tumbled nearly 1.5% on Wednesday, defying Wall Street's overnight gains, as investors spooked by the recent freefall in small-cap and mid-cap stocks rushed to offload riskier holdings.
Brokers pushed traders to liquidate bets in smaller shares bought on loans following the capital market regulator's recent warnings of 'froth' and 'bubble' in pockets of the market. This sent the Midcap 150 and Smallcap 250 indices plunging 4.2% and 5.2%, respectively-their biggest single-day fall in two years.
The Sensex fell 1.23%, or 906.07 points, to close at 72,761.89 and the Nifty 1.51%, or 338 points, to close at 21,997.70. Of the 50 stocks in Nifty, 43 declined. The selloff eroded India's market capitalisation by ₹13.5 lakh crore in a single day.
Analysts expect further declines with Kotak Securities' head of equity research Shrikant Chouhan predicting the Nifty to drop by 2-3% and smallcap and midcap indices to fall by 5-10%.
PSU Shares Among Big Losers
Brokerage Prabhudas Lilladher said the Nifty is near a crucial support level of 21,900.
Concerns that more mutual funds may put restrictions on investor flows into smallcap and midcap schemes have fuelled the market nervousness. ICICI Prudential Mutual Fund said it will not accept lumpsum money in its mid- and small-cap schemes from March 14, while other fund houses like Nippon, Tata and SBI have already put curbs on lumpsum investments in smallcap schemes. These moves are expected to dampen purchases of smallcap shares, traditionally favoured by retail
