Not a pretty Monday to start March with for the Midcaps and the smallcaps as the key indices continue to be under severe selling pressure. In fact, the BSE Smallcap Index is down over 1300 points while the BSE Midcap slumped close to 800 points within the first three hours of trade. This is after the the sharp 2% plus fall on Friday, February 28. The BSE Smallcap is down 14% in past 1 month and declined almost 25% so far in 2025. The BSE Midcap Index is no different either. It is down 10% in last 1 month and slumped 18% in 2025 so far.
Valuation worries
The primary concern is about the valuation of small and midcaps. Over the last 1 month and as reported by Financial Express.com, we have multiple reports from Kotak, Nomura and many established market observers on the valuation worries across the mid and small caps. Most have predicted further correction in the section. Kotak Institutional Equities pointed out that the “valuations are still fair-to-full-to-frothy for most parts of the market.”
Market veteran Arun Kejriwal was categorical in pointing out hat though moving forward the large caps may see some select buying by FIIs, the same can’t be expected in midcaps, “If you find this segment (largecaps) moving, foreigners may be tempted to come back and start buying, not selling, because they now realize they don’t own much of it. This does not mean that mid-cap, small-cap will play a catch-on effect. There is a lot of pain left there.”
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Most market observers explained that the redemption pressure is also weighing on sentiment in the mid and small cap space. Market veteran Deepak Jasani believes that, “the selling in the mid and small caps at the moment is more from Mutual Funds and PMS rather than the average retailer. The common man is unlikely to sell at these low prices and would rather hope for a bounceback to liquidate positions. I think the selling that we are seeing currently may be due to redemption pressure from Mutual Funds/PMS and also Fund Managers wanting to raise cash. The Nifty has not stabilised so far.
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