A rather somber Monday afternoon for the markets. After some initial buying, the indices are in the red with the Nifty slipping below 22,500 and the Sensex declining nearly 200 points pulled lower by banks, cement, capital goods. What’s even more worrying is the sharp cut across the small and midcap space. The BSE Smallcap Index has fallen nearly 2% while the BSE Midcap is down nearly 1.5%.
Three reasons why the market is under pressure Sharp fall in mid and small caps
The mid and small cap stocks have been in the eye of storm on concerns about valuation froth. The BSE Small Cap Index is down over 8% in 1 month and for 2025, the Index is down almost 20%. The cuts in the midcap space is also equally brutal. The BSE Midcap Index is down over 6% in last one month and so far in 2025, it is down a massive 15%. Most analysts and market experts have raised concerns about valuation worries in the space. Many believe the buying seen in large caps after the recent correction won’t be mirrored by similar sentiment in the mid and small cap space. This is because they anticipate further correction.
ALSO READNot bearish. Nifty could surge 12-13% within a year – Manish Sonthalia Concerns about redemption pressure
The other big problem for the mid and small caps is redemption worries. Many market observers believe that this space could begin to see redemption as the financial year draws to a close. Siddarth Bhamre, Head Institutional Research-Asit C. Mehta Investments Intermediates pointed out that, “Small and midcaps are under pressure and I don’t see any significant or immediate upside in that space. One may see redemption pressure in small and midcap funds going forward. Given the sharp spate of correction here, every rise will be used to realise profit. There were excesses in the system. I still feel the mid and small caps have reasonable amount of downside from current levels. I will not foray into any bottom fishing at the moment.”
ALSO READWhen will FII buying begin? Experts say not before…. Earnings downgrade worries
Earnings risk is another fundamental worry plaguing the mid and small caps. Q3 earnings season was hardly encouraging and the indications are that the earnings pain may continue for a few quarters.
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