Market sell-off deepens as midcaps enter correction zone
Indian equities, especially the Nifty Midcap 150 index, have recently slipped into correction territory as valuations soar. The small-cap and micro-cap indices are mirroring this trend amid rising investor concerns. Previously, retail investments bolstered smaller stocks, but high valuations threaten future returns. Moreover, analysts observe that even after declines, small and mid-cap stocks…
Indian equities experienced a significant sell-off that has propelled the Nifty Midcap 150 index into correction territory, with small-cap and micro-cap indices following suit. The Nifty Midcap 150 has lost 10.2% from its 52-week peak, recorded on August 31, after a 1.4% decline on Wednesday. The Nifty Smallcap 250 index has decreased by 8% from its September 8 high, after falling 2.3% during the day.
The Nifty Microcap 250 index has dropped 8.1% from its recent high in early October, after dropping 2.6%. The Sensex and Nifty, both down around 0.5% on Wednesday, have collectively declined nearly 15% so far in 2026.
While there is no strict definition of a market correction, a 10% or more drop, yet below 20%, from a recent high is typically considered one. Many smaller stocks have largely weathered the weak sentiment and the sharp declines in blue chips over the past two years, thanks to a surge of retail money through equity mutual funds and direct investments. However, concerns about elevated valuations are now catching up as investors assess whether the broader risk-off sentiment could affect future returns.
Midcap and smallcap indices have entered correction territory three times over the past two years, with the midcap index falling nearly 19% from its January 2025 high to its February low, and the smallcap index losing almost 26% in the same period, entering bear market territory but later recovering. Recent valuations are still above large-cap stocks as the midcap index trades at a 42% premium to the Nifty, compared to its five-year average of 40%, and the smallcap index is at a 45% premium, slightly below its five-year average of 75%.
Analysts Atul Bhole of Kotak Mahindra AMC note that while valuations have come down from very high levels, they remain on the higher side. However, the overall earnings outlook remains robust, with projections of 16-20% earnings growth for midcap and smallcap stocks. Any positive news on geopolitical events, crude prices, or interest rates could potentially trigger a market rebound.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
