Red Alert! Nifty Smallcap 100 crashes 3.5%; 17 index stocks tumble over 5%

Small-cap stocks continued to face heavy selling pressure for the second straight trading day on Tuesday, October 22, with the majority of stocks registering losses between 5% and 13%.

Investors are reacting negatively to the weak earnings reported by companies so far for the September quarter as they have failed to justify the premium valuations these stocks had been trading at. This disappointing performance has triggered a sharp sell-off, further exacerbated by profit-booking in the small-cap segment.

Consequently, the Nifty SmallCap 100 index plunged 3.5% in today's intraday trade, falling below the 18,200 level to 18,144. Over the past four trading sessions, the index has corrected by 6%, reflecting the broader concerns surrounding small-cap valuations and earnings outlook.

At current levels, the Nifty SmallCap 100 index is trading at its lowest point since mid-August, having fallen 7.5% from its recent peak of 19,640. Similarly, the Nifty Midcap 100 index is currently trading with a cut of 1.82%. Meanwhile, the frontline indices, Nifty 50 and Sensex also remain under pressure, with declines of 0.7% and 0.67%, respectively.

17 stocks down over 5%

Among individual stocks today, Amber Enterprises India saw a sharp 13% decline to ₹5,534 apiece, reversing sharp gains from the previous trading session. Garden Reach Shipbuilders also fell by 8% to ₹1,659 apiece, while Jupiter Wagons, Aditya Birla Real Estate, 360 One Wam, Ircon International, NBCC (India), and 13 other stocks lost more than 5%.

As of 02:00 p.m., all constituents of the index were trading in negative territory, reflecting widespread selling pressure across the small-cap segment.

In recent years, small-cap stocks have thrived on strong investor sentiment, driving their valuations higher and making them particularly appealing to those seeking growth opportunities. However, the current environment reflects a shift in sentiment, with many investors engaging in profit-taking as fresh catalysts for further gains remain scarce, especially as the Q2 earnings season has largely disappointed so far.

Analysts have been raising concerns over the steep valuations of small-cap stocks, which had attracted strong retail investor interest due to their appeal as more affordable alternatives to large-cap stocks. According to the domestic brokerage firm Motilal Oswal, large, mid, and small caps’ market capitalisation-to-GDP continues to trade at historical highs, with small caps now surpassing midcaps.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.