Stock market today: Massive profit-booking in midcaps and smallcaps; analysts advise to be ‘selective’ in stock picks

The Indian stock market indices, Sensex and Nifty 50, traded over half a percent lower each on Monday amid heavy selling in metals, banks, realty, energy and auto stocks.

Broader markets underperformed the frontline indices as the Nifty Smallcap 100 index declined over 3%, while the Nifty Midcap 100 index dropped more than 2%.

SJVN, Amber Enterprises, NBCC (India), HUDCO, IRB Infrastructure Developers, Indian Overseas Bank and MCX India were among the drags on the smcallcap index as they fell in the range of 9% – 20%.

In the Nifty Midcap 100 index, NHPC, IRFC, Bharat Dynamics, RVNL, and Yes Bank shares declined the most with a loss of around 8% – 12%.

Also Read: NHPC share price declines 10% ahead of Q3 results today. Should you Buy, Sell or Hold the stock?

Analysts have raised concerns about the frothy valuations of the broader market and find safety in large-caps for the long-term perspective.

“Midcap and smallcap stocks are witnessing profit booking after a sharp run up. Markets are exhausted at higher levels and some of the money is shifting towards IPOs. Valuations in mid and smllcap space are still expensive and the incremental upside seems limited,” said Avinash Gorakshakar, Head – Research, Profitmart Securities Pvt. Ltd.

Gorakshakar suggests investors to book profits in midcap and smallcap stocks which are trading at stretched valuations and be selective in this space.

Meanwhile, some analysts also attribute the correction in midcap and smallcap stocks partially to the increase in margins on the MTF (margin trading facility) by broking firms. Certain brokerage firms reportedly have raised margins on their BNPL (buy now, pay later) service amid a spike in volatility in the stock market.

Also Read: NBCC stock slides for 6th day in a row, locked in 10% lower circuit; here’s why

Vinod Nair, Head of Research, Geojit Financial Services said that the increase in margins have largely affected the midcap and smallcap stocks and he believes the sentiment in the broader indices remains vigilant due to their rich valuation.

“Valuations of broader markets are still at the higher side. Investors can book profits in expensive midcap stocks and rebalance or shift some of their money towards large cap stocks,” Nair said.

He advises investors to focus on IT, pharma, FMCG, telecom sectors and large private banks as he finds good investment opportunities here.

At 12:30 pm, the benchmark Sensex was trading 349.61 points, or 0.49%, lower at 71,245.88, while the Nifty 50 was down 120.50 points, or 0.55%, at 21,662.00. The Nifty Midcap 100 declined 1.85% and the Nifty Smallcap 100 plunged 3.12%.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.