The Sensex took a nosedive of over 1,000 points on Wednesday, dipping below the 73,000 mark before staging a partial recovery, while the Nifty experienced a decline of over 1%. The smallcap and midcap indices bore the brunt of the downturn, with the BSE smallcap index plummeting by more than 5%.
Closing 906 points lower at 72,761, the Sensex witnessed a substantial drop, while the Nifty concluded the session down by 338 points, ending just three points shy of the 22,000 mark.
Analysts attribute this significant decline to a combination of factors, including overflowing liquidity and stretched valuations in the smallcap and midcap segments. In an interview with NDTV, market expert Ambareesh Baliga highlighted that inflated valuations and abundant liquidity were pushing stock prices up, despite underlying concerns about fundamentals. However, recent regulatory measures, particularly restrictions on fund inflows into small and mid-cap funds by mutual funds, have raised concerns about overvaluation.
Baliga highlighted a notable correction in the smallcap index, indicating a significant drop in stock prices, some by as much as 20% to 40%. This correction has triggered panic among investors who had previously seen only gains, leading to a drying up of liquidity. Baliga cautioned that this could be just the beginning of further corrections as liquidity continues to dwindle.
In light of these developments, Baliga advised retail investors to consider booking profits or losses and transitioning into large-cap stocks, which offer greater stability and relatively more reasonable valuations. He emphasized the importance of avoiding investment decisions based solely on tips and urged investors to exercise caution amid the current market volatility.