Monday Mayhem! Nifty Smallcap crashes 4%; 80 index stocks down 20-55% from 1-year highs

Indian Stock Market: Retail investors' most favoured small-cap stocks are at the forefront of the recent market sell-off, with many counters hitting multi-month lows as the selling pressure continues to intensify with each passing day. 

In today's session, January 13, the Nifty Smallcap 100 index tumbled another 4%, reaching a level of 16,912.90, the lowest since mid-June. 

The index remains in negative territory over the last six out of the last seven trading sessions (including today), losing nearly 11.4% of its value from the January high of 19,224. Moreover, the recent crash has also caused the index to correct 13.6% from its all-time high of 19,716, which was reached on December 12. 

This recent sell-off in small-cap stocks follows concerns that Q3FY25 could be another quarter of modest performance for Indian Inc, coupled with a slowdown in capex growth, which usually sees small-cap companies as the biggest beneficiaries of a capex uptick. The expectations of a slowdown in earnings and rich valuations have remained a cause of worry for investors, leading to a sharp sell-off in this space. 

According to an analysis by domestic brokerage firm JM Financial, there are risks of EPS cuts for 49% of the companies in its coverage universe in Q3FY25. "While some of these companies have already seen EPS cuts following the release of business updates for the quarter, consensus expectations for the remaining companies appear overly optimistic," the brokerage noted.

Reinforcing these projections, the results announced by small-cap companies so far have not met street expectations and are being punished by Dalal Street investors following their release. For instance, shares of CESC and Aavas Financiers, have seen their stock tumble by up to 5% following the release of their December quarter numbers.

The brokerage analysis highlights that in 17 out of 32 sub-sectors, 50% or more of the companies face downside risks of EPS cuts. Sub-sectors, where 75% or more companies have downside risks, include PSU banks, consumer staples, auto and auto components, cement, sugar, and city gas distribution.

Moreover, the expectation of moderate earnings is also dampening overseas investor sentiment, as they have resumed their selling streak in Indian equities in the new year. FPIs pulled out ₹2254 crore through exchanges during Friday's trading session, taking their total selling figure to ₹22,259 crore so far this month, as per the NSDL data.

80 Stocks down up to 55% from recent peaks

According to the Trendlyne data, 80 stocks from the Nifty Smallcap 100 basket are currently trading in the bear territory with declines ranging from 20% to 55% from their respective 1-year highs. A stock is said it to be in bear grip when it loses 20% or more of its value.

Chennai Petroleum emerged as the biggest laggard, as the stock continued to slide for the sixth consecutive month in January, losing another 7% to trade at its current level of ₹585 apiece. At current levels, the stock is trading 55% below its 1-year high of ₹1,275 apiece. 

Zee Entertainment stands as the second biggest laggard, having fallen 54% from its 1-year peak. Railway and related stocks, which dominated the market for most of 2024, are now witnessing heavy selling pressure.

Shares of 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: We advise investors to check with certified experts before taking any investment decisions.