The euphoria surrounding India’s SME stocks has come crashing down, leaving behind a trail of losses, shattered valuations, and growing calls for regulatory introspection. Data shows that since the peak of the BSE SME IPO in early January, as many as 75% of the stocks have fell in double-digits.

This is almost a complete inversion of most of the frenzied gains seen in the last few years. Further, as many staggering 86% of listed SME stocks delivered negative returns to investors in the three month period from the peak.

From FOMO to fallout

What began as a dream run — with multibagger gains and oversubscription headlines dominating news — has turned into a sharp reality check for investors. Consider this: At least a quarter or 25% of stocks in the SME universe have fallen 30% or more.

The negative sentiments are also visible in the grey market, where premiums are almost wiped out now. The subscriptions for the IPOs are not exceeding 10x.

SME stocks have seen a correction recently due to several factors. But the broader market volatility and correction is one of the biggest factors. The Indian equity market has experienced a correction, with the Nifty50 down more than 14% from its September peak.

This overall market volatility affected SME stocks significantly due to their inherent volatility and lack of institutional support. The stocks also had stretched valuations, which led to sharp corrections when market sentiment turned negative. The recent correction was also partly due to these valuations being unsustainable in a slowing economy.

SME stocks typically lack significant institutional backing, making them more susceptible to market downturns. Without strong institutional support, these stocks can experience rapid declines during corrections.

“Recently, the broader market has been impacted by global headwinds, stricter monetary policies, and widespread investor caution.

SMEs are particularly vulnerable to market corrections because of structural problems such inadequate liquidity, poor corporate governance and high operational risks,” said Rajesh Sinha, Sr Research Analyst at Bonanza Group.

The market has also become more disciplined as a result of recent changes that have raised the minimum application size to Rs 2 lakh,

mandated profitability requirements, and limited the offer-for-sale (OFS) to 20% of the issue.

By ensuring that only financially sound SMEs join the public market, these policies aim to increase investor trust over the long run.

Experts also say the sharp decline thus highlights the need for better risk management and increased transparency in this sector and is a result of a combination of macroeconomic forces and intrinsic flaws in the SME market.

However, the future looks bright for SMEs preparing for IPOs later in the year thanks to increased transparency and quality. “Market players anticipate that the SME IPO category would progressively regain its credibility and momentum with better corporate governance and due diligence, assisting entrepreneurs as well as the larger Indian startup ecosystem,” said Sinha.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

After a harrowing February marked by intense selling pressure in smallcap stocks, the first week of March brought a glimmer of hope for a potential turnaround. During this period, only four smallcap stocks experienced double-digit declines, while over 200 names surged with double-digit gains, which could be the start of a shift in market sentiments.

Benchmark Sensex ended the week 1.6% higher, while the smallcap index surged nearly 6%. The market rebound was primarily driven by positive news on the domestic macro front, where the GDP growth was quicker than the previous quarter.

A fall in the dollar index also sweetened investor sentiment towards emerging markets, while the US equity markets declined due to uncertainty over Trump’s economic policies.

On the tariffs front, the long-awaited tariffs were enacted, but later backtracked by delaying their implementation, creating uncertainty among investors.

In the smallcap pack, Anupam Rasayan, Sandur Manganese, Man Industries (India), Vadilal Industries, Triveni Turbine, and Coffee Day Enterprises led the gains, rising up to 40% in a week.

The biggest losers, on the other hand, were Gensol Engineering, EKI Energy Services, Jindal Worldwide and Suratwwala Business Group. The shares of Gensol cracked nearly 40% on the back of rating downgrades by key agencies, owing to a high credit risk and financial troubles.Like smallcaps, the story is similar in the midcaps as none of the stocks saw notable declines. About 7 counters including Biocon, Suzlon Energy, GSK and ZEE gained up to 13% in the week.Coming to the largecaps, 22 out of 30 stocks in the benchmark Sensex ended the week on a positive note. M&M, NTPC, SBI, Adani Ports and Tata Steel were the biggest gainers in this space.

Will the momentum continue?

Analysts say the domestic market gradually recovered from its oversold levels. However, a decisive upward momentum will be based on the recovery in corporate earnings and an ease in tariffs uncertainty.

Going forward, investors will also keep a close eye on payroll data and US inflation to get cues on interest rates.

“The premium valuation of broader indices may restrict a broad-based market recovery in the short run, while large caps appear attractive,” said Vinod Nair, Head of Research at Geojit Financial Services.

“We expect the market to trade within a broad range, albeit some volatility on account of fickleness in global developments,” said Siddhartha Khemka, Head – Research, Wealth Management, Motilal Oswal.

Technically, analysts said the sentiment remains positive, with the potential to reach higher levels in the short term. “On the higher end, immediate resistance is seen at 22,700–22,750. On the lower end, support is placed at 22,400, below which the index may lose momentum,” said Rupak De, Senior Technical Analyst at LKP Securities.

Data: Ritesh Presswala

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

Even though the Nifty earnings will remain tepid in FY25, the outlook seems much more promising for the next fiscal, thanks to a consumption-focused Budget delivered by Finance Minister Nirmala Sitharaman.

Leading brokerage JM Financial pegged Nifty EPS growth (earnings per share), which is the average of India’s top 50 stocks, at 18.3% for FY26. This comes even as the EPS for the current fiscal is revised down to 3.8%.

Corporate earnings have been in a slowdown in the last few quarters, where the top Indian companies reported their weakest quarterly performance in over four years for July-September quarter.

The Nifty EPS was tepid with only 5.5% and 4.2% YoY growth in Q1 and Q2, respectively. Further, against the brokerage’s expectations of 5.8% YoY growth in the third quarter, so far the 26 Nifty companies that have reported numbers delivered only 4.4% YoY growth.

JM Financial gave three reasons as to why the EPS would edge significantly higher in next fiscal. First is the rebate in personal taxes. “Nil tax up to Rs 12 lakh and rejigging of tax slabs should support consumption (both discretionary and non-discretionary), especially in the urban economy,” it said.

The brokerage also said that, unlike CY24, the rural economy should do better in CY25 on the back of good monsoons and reservoir levels improving above long period averages. Further, the government capex growth should be much better at 10% in FY26 versus 7% in FY25.Following the correction, where the Nifty, Nifty midcap and smallcap indices dropped 12%, 14% and 16%, respectively, JM Financial said valuations are relatively less expensive now.”Interestingly, the bond yield premium above earnings yield suggests the market is cheaper than what the Nifty50 P/E multiples suggest. Midcap and small cap valuations still seem expensive even though earnings growth might be stronger in these names vis-à-vis large caps,” it said.

The brokerage also said a change in guard at the RBI with a new governor has sparked hopes of the start of the rate cut cycle from February 25. Moreover, we expect inflation to trend lower in the near term to 4.5-4.6% levels.

Analysts believe the RBI’s recent measures around bond purchases, repo operations and currency swaps were intended to address the liquidity situation, which sets the stage for the start of rate cut cycle in the meeting that starts later this week.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)

Due to a lack of significant catalysts, the market closed flat with a positive bias this week. Strong performances in heavyweight sectors such as banking and pharma helped offset declines in the IT sector, providing support to the major indices.

During the week, just 13 smallcap stocks delivered double digit weekly returns with three of them offering over 20% returns.

Intellect Design Arena was the top gainer in the smallcap pack with nearly 25% return, followed by Amber Enterprises (22%), Greaves Cotton (21%), and Aarti Pharmalabs (19%).

About 10 stocks including PTC Industries, Saurashtra Cement, Caplin Point Labs, Devyani International, PTC India, Hitachi Energy among others have offered returns between 10-20% during the week.

In the midcap segment, only Adani Wilmar managed to gain in double-digit with a return of 13%.

Among the Sensex pack, Mahindra and Mahindra topped the charts with 5% returns, followed by Adani Ports at 4% and Tata Motors at 3.7%.During the week mid and small-cap indices also ended on a flat note as persistent concerns over FII outflows and the depreciating rupee, along with potential adverse tariffs and reduced expectations for rate cuts in 2025, contributed to the muted market trend.

What should investors do now?

Analysts say uncertainty surrounding Trump’s economic policies and high valuations may impact the stock market in the short term, particularly in emerging markets. The rising USD and US bond yields are prompting FII outflows, although the easing quantum of these outflows offers some relief.

Looking ahead, as we enter the new year, markets will likely react to the third quarter earnings.

“Investors are likely to align their portfolios based on pre-budget expectations. Additionally, key data points such as the PMI data for India, the US, and China, as well as US jobless claims, will influence investor sentiment,” said Vinod Nair, Head of Research, Geojit Financial Services.

Technically, analysts say the Nifty index continues to exhibit a constrained sideways-to-bullish trajectory.

“A breakout above 24,000 could spark a short-covering rally, driving the index toward 24,500. However, until such a breakout materializes, a ‘buy on dips’ strategy remains prudent,” said Dhupesh Dhameja, SAMCO Securities.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

Domestic markets are in a correction phase with benchmark indices, Nifty and Sensex, falling around 10% from the peak. The weakness in second quarter results and sustained outflow of foreign funds weighed on the sentiments.

During the week, as many as 103 smallcap stocks have delivered double-digit negative weekly returns with four of them falling over 25%.

Kopran Ltd was the top loser in the smallcap pack with 26% decline, followed by Globus Spirits (-23%), Antony Waste (-21.7%), and BASF India (-21.1%).

About 98 stocks including CE Info Systems, Tanfac Industries, RK Swamy, Greaves Cotton, Hitachi Energy, Motisons Jewellers, IIFL Capital Services, Valiant Organics, Raju Engineers, Suraj Estate Developers among others have dropped between 10-20% during the week.

Only 8 smallcap stocks gained in double-digits in the reporting period with Pix Transmissions and JSW Holdings being the top gainers.

In the midcap segment, no stocks delivered double-digit returns, but around five stocks fell 10% or more. Bayer CropScience, Tube Investments, Relaxo Footwear are the top losers, while Uno Minda, Biocon and Ramco Cements bucked the bearish trend with leading gains.Among the Sensex pack, IT companies stayed resilient with Infosys topping the charts, followed by HCL Tech, which rose at 1% and Tech Mahindra, whose shares gained by a quarter percentage.

What should investors do?

Analysts said a spike in domestic CPI inflation to a 14-month high of 6.2%, a firm dollar index, and a rising US 10-year yield signal that the volatility will continue in the short term.

“Investors are rushed to unwind their positions in the riskier assets as the continuity of the premium valuation without a fair earnings growth will not be sustained,” said Vinod Nair, Head of Research at Geojit Financial services.

Going ahead, the focus will be the developments from the Trump administration and its implications towards the emerging markets.

“We factor a 2 to 3% downward revision in the Nifty EPS estimate for FY25. Amid a setback in H1FY25, investors see some light in H2FY25 earnings on account of acceleration in government spending, a good monsoon, and a revival in rural demand. Consolidation may continue in the near term; however, the beaten-down value stocks may witness bottom fishing due to their potential outlook,” Nair added.

Technically, the index, on a daily scale, has formed a Doji candle near its 200-Days exponential moving average (DEMA) support indicating uncertainty. The 200-DEMA is placed around 23,540.

“A bounce is likely, but it should be seen as an opportunity to sell. If Nifty breaks below the 200-day EMA, selling pressure could intensify. The index has support at 23,450, with resistance expected at 23,650, framing the short-term trading range,” said Rupak De of LKP Securities.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)