Sharp Decline: Nifty Smallcap 100 crashes 4.6%, 24 index stocks tumble over 5% | Stock Market News

Indian Stock Market: Small-cap stocks continued to face heavy selling pressure for the second straight trading day on Monday, January 27, with the majority of stocks registering losses between 5% and 13% as investors are reacting negatively to the weak earnings reported by companies so far for the December quarter, as they have failed to justify the premium valuations these stocks had been trading at.

In addition, sustained selling by foreign portfolio investors (FPIs) is weighing heavily on the markets, resulting in sharp cuts across the board. In today’s session, the Nifty Smallcap 100 index tumbled another 4.60% to 16,178, the lowest level since mid-June.

Today’s drop was also the biggest intraday decline since August 2024. The index has remained in negative territory in four of the last five trading sessions (including today), losing nearly 9% of its value. From its January high of 19,224, it is now down by 15.54%.

Moreover, the recent crash has caused the index to correct 17.6% from its all-time high of 19,716, which was reached on December 12.

The results announced by small-cap companies over the weekend have not met street expectations and are being punished by Dalal Street investors in today’s session. For instance, shares of Atul, Trident, Intellect Design Arena, CreditAccess Grameen, and Central Depository Services (India) are currently trading with cuts of between 2% to 11% in today’s trade following their results announcement.

Other stocks such as Tejas Networks, Swan Energy, Piramal Enterprises, Computer Age Management, Tanla Platforms, and Garden Reach Shipbuilders are also trading with cuts in the range of 6% to 12%. As of 3:00 p.m. today, 24 constituents of the Nifty Smallcap 100 index have fallen by over 5%.

Despite the sharp correction in small-cap stocks, analysts believe valuations in this space still remain rich. The Nifty Smallcap Index delivered a return of 24% in 2024, even after a correction in December. This performance is nearly double its 10-year average return of 13.1%, which analysts believe suggests valuations could trim down further.

Analysts had earlier highlighted that high PE levels persist across most asset classes. These elevated valuations are not confined to specific sectors but are present even in traditional businesses.

The retail investors’ exuberance has driven a strong rally in small-cap stocks in recent years, leading to the AUM of small-cap funds reaching ₹3 lakh crore by the end of 2024, which is six times higher than it was in January 2020.

85 stocks down up to 61% from recent peaks

According to Trendlyne data, 85 stocks from the Nifty Smallcap 100 basket are currently trading in bear territory, with declines ranging from 20% to 61% from their respective 1-year highs. A stock is considered to be in bear territory when it loses 20% or more of its value.

Sterling and Wilson Renewable Energy emerged as the biggest laggard, as the stock continued to slide for the seventh consecutive month in January, losing another 30% so far to trade at its current level of ₹321 apiece. The sharp sell-off has caused the stock to lose 61% of its value from its 1-year peak of ₹828 apiece.

Chennai Petroleum emerged as the second-biggest laggard, with the stock continuing its decline for the sixth consecutive month in January. It lost an additional 15.5%, bringing its current price to ₹528 per share, which is 59% lower than its 1-year high of ₹1,275 per share.

Shares of Raymond, Titagarh Rail Systems, Ircon International, Jupiter Wagons, and RailTel Corporation are currently down by 30% to 48%. Other prominent stocks, including Garden Reach Shipbuilders, Sterling and Wilson Renewable Energy, Hindustan Copper, Inox Wind, Olectra Greentech, NBCC (India), JBM Auto, and Finolex Cables, are down by up to 40%.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.