Indian markets have turned cautious as smallcap stocks crashed by up to 46%. The broader Sensex and Nifty indices also fell, driven by significant selling from Foreign Institutional Investors (FIIs) that overshadowed strong domestic buying.
After weeks of steady gains and investor optimism, the mood in Dalal Street has turned cautious. Smallcap stocks, once the darlings of the rally, have tumbled by as much as 46% this week, raising a pressing question: is this just a healthy pullback or the start of something deeper?
The broader Indian markets couldn’t escape the volatility either. The Sensex dropped 722 points (0.86%) to close at 83,216, while the Nifty50 slipped 229 points (0.89%) to 25,492. What’s worrying traders is that this slide came despite strong buying by domestic investors, a sign that foreign outflows are overpowering local optimism.
FIIs Sell, Markets Shiver
Foreign Institutional Investors (FIIs) dumped shares worth Rs 1,632 crore this week, extending their selling streak. In contrast, Domestic Institutional Investors (DIIs) continued to buy aggressively, pumping in Rs 16,677 crore, providing a cushion to the market.
Most sectors, however, couldn’t dodge the red zone. Media stocks fell over 3%, defence shares slipped 2%, and metal and IT counters also lost ground. Only PSU banks managed to shine, up 2%, buoyed by solid earnings and improving asset quality.
“Indian equity markets ended on a negative note amid the absence of fresh domestic catalysts and continued FII outflows,” explained Vinod Nair, Head of Research at Geojit Financial Services.
“While PSU banks and select stocks are doing well, IT and metal names are under pressure due to weak global cues and fading hopes of a Fed rate cut,” he added.
Smallcaps Take the Hardest Hit
The correction was most brutal in the smallcap space, a segment that has been on fire for months. Stocks like Worth Investment & Trading, Fischer Medical Ventures, Reliance Infrastructure, and Bliss GVS Pharma lost between 15% and 46%, wiping out weeks of gains in just days.
Meanwhile, a few names stood tall. Thangamayil Jewellery, LG Balakrishnan & Brothers, and CCL Products India managed to rise as much as 56%, proving that not all smallcaps are sinking.
“Retail investors had driven smallcaps to stretched valuations,” said a Mumbai-based market watcher. “Now that FIIs are selling and sentiment has cooled, these sharp moves are just gravity at work.”
What the Experts Say
According to Nagaraj Shetti of HDFC Securities, the market’s short-term trend remains weak but the bigger picture isn’t all gloom. “We could see Nifty drop toward 25,400–25,500 before rebounding. For now, it’s a buy-on-dips market,” he said.
However, Rupak De from LKP Securities struck a more cautious note.
“The index has been slipping since it formed a double top near 26,100. As long as it stays below 25,600, expect the bears to stay active,” he warned. “If we break 25,400, the correction could deepen.”