The broader market has been seeing substantial selling pressure in the last one month starting February 19. Most market observers believe this is primarily on the back of the SEBI Chief’s comment highlighting “There are pockets of froth in the market.”
Since February 19, over 80% of stocks in the BSE Small Cap Index have seen negative returns, contrasting with a nearly one percent gain in the Nifty during the same period.
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The BSE Small Cap Index witnessed a significant decline of 7% over the past month, indicating a notable downturn in stocks with smaller market cap. The BSE Midcap Index experienced a relatively lesser decline of 2.24%, suggesting a more stable performance among mid-sized companies listed on the Bombay Stock Exchange.
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The pressure on mid and small cap indices is mostly seen as a response to concerns raised by the market regulator, Securities and Exchange Board of India (SEBI), regarding the buildup of froth in these segments. SEBI Chief, Madhabi Puri Buch, expressed apprehensions over “off the charts” valuations in small and mid-cap stocks, indicating potential price manipulation in these market segments.
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Buch had stated that the valuation parameters in these segments are not supported by fundamentals, labeling them as “irrational exuberance.” SEBI is open to reviewing norms mandating small and mid-cap funds to invest 65% of their assets in these stocks, reflecting a proactive stance to address market irregularities.
On the National Stock Exchange (NSE), the Midcap 100 index dropped by 3.03% over the same period, signaling a negative trend in the performance of mid-sized companies within the NSE ecosystem.
Furthermore, the NSE Small 100 index recorded a substantial decrease of 6.7% in the last month, highlighting a pronounced decline in the performance of small-cap stocks listed on the National Stock Exchange.