The markets witnessed carnage in mid and small-cap stocks on Wednesday as Rs 13,47,823 crore of investor wealth went up in smoke over valuation concerns and comments by the market regulator on froth in certain segments.
The Sensex bled more than 900 points to close below the 73000 level, while the Nifty crashed 338 points or 1.51 per cent to 21997.70.
There were other reasons for the overall rout that only a few stocks were able to dodge: February inflation in the US rose to 3.2 per cent from 3.1 per cent in the preceding month, diminishing hopes of an early rate cut that could delay portfolio inflows into India.
"Valuations in the domestic markets on the other hand had run up ahead of fundamentals and there was a need for correction which happened today. While the intensity witnessed today is unlikely to be repeated, any bounce-back is unlikely to be sustained,’’ Arun Kejriwal, director, KRIS, an investment research firm, said.
Investors hammered Adani stocks on Wednesday – a day after the SBI submitted details on electoral bonds to the Election Commission in two different files: the first listing individuals and entities who bought the bonds between April 1, 2019 and Feb 15, 2024. The second list is of the political parties that encashed them.
All 10 listed stocks of the Adani group tumbled on Wednesday, erasing Rs 1.12 lakh crore from their combined market valuation.
The midcap and smallcap universe bore the brunt as reflected in the BSE midcap index slumping 4.20 per cent and the smallcap index, 5.11 per cent.
The sharp fall has been attributed to comments by Sebi chairperson Madhabi Puri Buch on Monday of “froth” and “irrational exuberance” in the markets.
Buch’s warning was preceded by mutual fund industry body Amfi asking funds to come out with stress tests on small and midcap funds.
Market circles said this reflects real apprehension on mutual fund inflows towards mid- and small-caps that led to investors dumping some of these stocks.
In the Sensex pack, Power Grid was the biggest loser, sliding over 7 per cent. It was followed by NTPC, Tata Steel, Tata Motors, JSW Steel, Bharti Airtel, Titan, Reliance Industries and Hindustan Unilever.
According to Siddhartha Khemka, head — retail research, Motilal Oswal Financial Services, ongoing scrutiny from Sebi, the pending outcome of the mutual fund stress test and the expensive valuation post smart rally seen in the last few months have led to profit booking.
"We expect the sluggishness in the market to continue in the near term with Nifty’s major support at the 21500 zone. “Key event to watch out for is India’s WPI inflation which will released on Thursday,’’ he said.
Kotak dissent
Veteran banker Uday Kotak said he did not see any sign of a bubble in the market, joining issue with Sebi chairperson Madhabi Puri-Buch who sounded the alert after reading signs of froth in the small- and mid-cap segments.
Kotak quoted John Maynard Keynes who once said that speculation was not a bad activity. He said speculation is part of the stock markets and one must ensure that enterprises do not manipulate stocks.
“I believe at this stage, we are nowhere near that risk and there are enough checks and balances in our system today to compare ourselves to serious bubble territory. There may be early froth but I would say it is a little bubbly but not out of control,’’ he said at an event.
“As long as we keep watch and manage it well, we can create sustained capital formation,” he said.
His statement is in contrast to that of Buch who on Monday said that there are pockets of froth in the small and mid-cap stocks. Her comments had sparked a selloff in these stocks on fears that mutual funds could moderate their holding.
Kotak also pitched for greater equality on the taxation front between equity and debt as this will enable investors to respond effectively to their changing prices.
“In the context of the equity culture, I do believe that there has to be some streamlining of taxation across different classes, including double taxation on dividends,” he said.
