Nifty at Historic high :Small-cap and mid-cap indices decline of up to 4.5% as investors engage in profit-taking

The day following Nifty’s impressive climb beyond the 20,000-point mark and the decision by domestic brokerage firm Kotak Institutional Equities to withdraw its endorsement of midcap stocks due to excessive enthusiasm in the broader market, saw a wave of profit-taking in small and midcap stocks on Tuesday.

Both the small and midcap indices of Nifty experienced declines of approximately 2-3%, with Indiabulls Real Estate, Infibeam, and RITES leading the downturn, each witnessing an approximately 8% drop. Notably, high-performing PSU stocks in the railways and defense sectors were among the most affected during today’s sell-off.

Stocks like Cochin Shipyard, GRSE, and Mazagon Dock experienced losses ranging from 6-7%, while rail-related stocks such as RVNL, Jupiter Wagons, and Titagarh Wagons observed declines of 4-6%.

This decline in small and midcap stocks stands in contrast to the relatively subdued performance of Nifty and Nifty Bank. Nifty PSU Bank, in particular, saw a decrease of over 1%, with Punjab and Sind Bank, UCO Bank, and Maharashtra Bank experiencing a 5% decline.

Market experts have consistently cautioned investors against getting too caught up in the rapidly rising segments of mid and small-cap stocks.

The brokerage’s decision to withdraw its recommendation for midcap stocks, which was made on Monday, stemmed from their inability to identify many stocks outside of the BFSI sector that displayed significant potential for upside growth.