Valuation anxiety grips smallcaps as 234 stocks sink in double-digits

In what is a steep fall from the preceding week, only four smallcap stocks have delivered double-digit returns during the week. In contrast, around 16 smallcap stocks gained in double-digits in the previous week.

Hercules Hoists was the top gainer in the smallcap pack, offering a rare 15% rally amid chaos. It was followed by Astec Lifesciences and Cigniti Technologies, whose shares rose just over 12% in the week ended March 15.

In contrast, as many as 234 stocks sinked with double-digit losses with 14 of them losing over 20%. India Pesticides shed the most at nearly 40%, followed by Paisalo Digital and Gensol Engineering.

The midcap segment too felt the heat but the destruction was little underplayed as only two stocks -- Solar Industries and Linde India -- gained in double digits. Eleven stocks in the midcap universe lost in double-digits in the reporting period.

Overall, domestic markets had a muted week as even the reliable largecap stocks fell victim to cautious sentiments among . Benchmark declined nearly 2% during the week and 20 out of the 30 constituents settled with cuts.

Sebi chief Buch highlighted irrational run-ups and expensive valuations in small and midcaps and asked for a stress test disclosures for funds investing in the broader market.

What should investors do?

Analysts said indications are in favor of consolidation with negative bias until the decisively reclaims 22,250 levels.

"The pace of decline would remain gradual citing the resilience of select heavyweights across sectors. Traders should continue with a stock-specific approach and maintain positions on both sides," said Ajit Mishra, SVP - Technical Research, Religare Broking.

In the broader market, analysts see some kind of bargain opportunities where valuations are underpinned by strong fundamentals.

"The moderation in global commodity prices and the upward revision of India's GDP for FY25 are poised to highlight robust domestic demand, potentially supporting a rebound once the broader market attains stability," said Vinod Nair, Head of Research, .

Technically, the short term and the near-term trend of Nifty appears weak and a decisive move below 21900 could open sharp weakness down to the next lower support of 21500 levels in the near term, according to Nagaraj Shetti of HDFC Securities.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)