Small and Mid Cap Stock Indices Fall Sharply

Small cap stock index plunged on Tuesday as valuation concerns are mounting.

BSE Small Cap Index was down 2.54 per cent much more than the benchmark Sensex which was down .38 per cent. The mid cap index is down 1.75 per cent. The IPO index is down 2.5 per cent. The BSE 250 Small Cap index is down 2.6 per cent.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said another trend which has started is the underperformance of the small cap index. This trend also is likely to continue since small cap valuations continue to be excessive. Nifty is likely to consolidate at around the present levels. Dips will be brought since institutional buying has been strong.

Nifty is trading at a 12-month forward P/E ratio of 19.5x, which is in line with its long-period average (LPA) even as broader markets trade at expensive valuations (the NSE Midcap 100 index is trading at 33 per cent premium to Nifty), Motilal Oswal Financial Services said in a report.

The Nifty managed to close in green (up 1.2 per cent MoM) in February 2024 after consolidating in January 2024. Notably, the index was extremely volatile and swung around 767 points before closing 257 points higher. During the last 12 months, midcaps and smallcaps have gained 60 per cent and 74 per cent, respectively, while largecaps have risen 27 per cent. During the last five years, midcaps have outperformed largecaps by 85 per cent, while smallcaps have outperformed largecaps by 65 per cent, the brokerage said.