Small-caps suffer worst monthly crash in five years in February; over 175 stocks face double-digit losses

Stock market today: Indian markets ended last month with significant losses as escalating global trade tensions, signs of a cooling U.S. economy, and weak domestic cues prompted investors to stay away from risky bets, leading frontline indices to register their biggest monthly drop since October 2024, while also marking a fifth consecutive monthly decline.

Donald Trump's series of announcements on tariffs on goods entering the U.S. is unsettling investors, as it raises concerns of a full-blown trade war if affected countries impose retaliatory measures.

Additionally, experts believe that higher tariffs are expected to drive up domestic prices in the U.S., potentially slowing the world's largest economy, which has led investors to reassess their portfolios, with allocations shifting toward safe-haven assets.

Amid this sentiment shift, domestic stocks have suffered heavily as overseas investors view Indian equities as overvalued compared to global peers, while Trump’s plans of reciprocal tariffs, including on India, have further weakened investor confidence.

Additionally, weak earnings in the December quarter and a slowdown in economic growth have led investors to believe that a near-term rebound in stocks is unlikely. In response, they withdrew ₹58,988 crore in February, taking their YTD outflows to ₹1.46 lakh crore. Reports suggest that overseas investors are redirecting funds to Chinese markets, expecting China's economy to strengthen following recent policy measures announced by Beijing.

Amid relentless foreign selling, both the Nifty 50 and Sensex have declined by nearly 6% in February, bringing their year-to-date losses to 6.5%. From their peaks, both indices have tumbled 15%, and their annual returns have also turned negative.

Nifty 50, on the other hand, recorded its worst five-month losing streak after 29 years, with the last seen in 1996 and the second-worst monthly decline since the index’s launch in July 1990.

High-flying small caps now in freefall

Small-cap stocks have borne the brunt of the heavy sell-off, suffering significant market value erosion and leaving retail investors' portfolios deep in the red. Once high-flying, small-cap stocks have now entered bearish territory, with some plunging as much as 70% from their respective 1-year highs.

The Nifty Smallcap 250 index has nosedived nearly 13% in February after correcting 11% in January. The February decline is also the biggest monthly drop since March 2020, when it tumbled 34%, highlighting the prevailing bearish sentiment among investors toward small-cap stocks.

According to Trendlyne data, 177 constituents of the Nifty Smallcap 250 index corrected between 10% and 34% in February. Natco Pharma emerged as the top laggard, losing 34.7% in value—its biggest monthly drop since August 2017, when it tumbled 26%.

Kirloskar Oil Engines was the second-worst performer, plunging 34%, followed by JBM Auto, BEML, Sonata Software, R R Kabel, Data Patterns, PTC Industries, Ircon International, Sun Pharma Advanced, Shipping Corporation, and Concord Biotech. Additionally, 16 other stocks fell between 20% and 33.8% in February.

Analysts expect market volatility to persist in the near term and suggest that large-cap stock valuations have become more reasonable compared to the mid- and small-cap segments. They advise investors to use this correction as an opportunity to buy quality stocks with strong fundamentals.

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.