Smallcap shares again declined on Tuesday due to frequent selling of foreign portfolio investors (FPIs), concern of expensive evaluations and weak income of companies. The Sensex and Nifty declined low while the Nifty Smallcap index slipped 1.6 per cent. The Nifty Small Cap 100 has fallen by 23 per cent from its peak of December 12. When a stock or index falls more than 20 per cent from its peak, it is considered to reach the recession.
Several stocks of the smallcap index have declined sharply due to selling. Shares that have suffered the most loss on an annual basis include Cans Technology (45 per cent fall), Sterling & Wilson (42.4 per cent), KEC International (39.12 per cent) and Jupiter Wagons (38.7 per cent).
From October itself, the markets are under pressure due to disappointing income of companies in September and December quarters. Analysts consider India’s deteriorating economic status due to this decline in income, which is due to continuous recession in consumption demand, reduction in government capital expenditure and weakening rupee. MK said in a note to investors that the income season was disappointing in the December quarter. In this, the profit in the Nifty and the BSE 500 increased the profit in one point. This led to another round of downgrade. However, it is less severe than in October 2024. We hope that the market will be under pressure throughout this quarter.
FPI’s aggressive selling (which was initially caused by the attraction of the US market amidst the incentive measures in China and later in American policy changes) has further increased the selling in the small cap. Although FPI investment in small cap is low, selling has increased market volatility and affects investors’ morale. Except for a month, FPIs have been selling pure from October. In 2025, FPI has withdrawn Rs 1.06 lakh crore from domestic equity. If domestic investors did not buy, the effect of sales could have been more serious. FPIs are also expected to continue selling in the near future.
Kotak Institutional Equities said that FPIs can maintain a vigilant attitude in view of the challenging global investment environment for emerging markets (EMs). Kotak’s note states that the Indian market may fade, which may affect high evaluation of various sectors and shares, possible fall in income and high global interest rates in the long term.
Market experts estimate that selling in smallcap is likely to continue and investors should be traded carefully. UR Bhatt, co-founder of Alphaniti Fintech, said that it is better for investors to stay away from smallcap at this time until they have a deep understanding of the company. The evaluation of the smallcap should be lower than the largecap and the selling pressure is likely to continue until it softens.
Despite the fall, the evaluation of the Nifty Small Cap 100 remains above its long -term average and is trading at the premium against the large cap. The Nifty Small Cap 100 is currently trading at 20.4 times a year ahead at PE while its average of 10 years is 18.5 times. Sensex and Nifty are trading at 19.5 times and 19 times respectively of income a year a year, below their long -term average.
First Published – February 18, 2025 | 10:03 pm IST
Related post
