Nifty Smallcap 100 sees 12% drop—Worst fall since March 2020!

The Nifty Smallcap 100 index has plunged over 12% this month, marking its worst fall since March 2020. The broader market indices followed suit on January 27, dropping between 3-4%. This decline is the largest since the Covid-induced panic selling in March 2020. However, it is worth noting that the index bounced back later that year, ending in the green with more than 21% gains. Over the past five years, excluding 2022, the Nifty Smallcap index has posted double-digit positive returns.

By 10:45 am on January 27, there were no gainers in the Nifty Smallcap 100, with all constituents experiencing a sell-off of up to 5%. Analysts suggest that weak earnings, lower consumption, and a weakening currency are fueling this decline. This marks the first double-digit drop for the index since February 2022. In the last 14 Januarys, the Nifty Smallcap index posted negative returns 57% of the time, indicating weak seasonality for this index at the start of the year.

The past week saw mid and small-cap indices suffer their third consecutive weekly loss due to continued foreign selling. This represents the longest losing streak since late October. As the Nifty 50 index fell below 23,000, chartists are closely monitoring the 22,700-22,900 support range for signs of a potential halt or rebound.

Ajit Mishra, SVP of Research at Religare Broking, warned that the benchmarks remain vulnerable to further downside and any recovery may face strong resistance around 23,450-23,650. Mishra emphasized the ongoing selling pressure in the midcap and smallcap segments, which may persist in the near term.

Sentiment for Indian stocks weakened further after US index futures dropped, weighed down by falling tech stock futures. Nasdaq futures fell over 1% ahead of the earnings season. Notably, Chinese startup DeepSeek launched an AI model that threatened US tech giants, contributing to the negative sentiment. Meanwhile, the dollar strengthened after President Trump imposed retaliatory tariffs and sanctions on Colombia, though this was later reversed following reconciliation.

This week could be pivotal for market sentiment, with the US Federal Open Market Committee (FOMC) meeting expected to hold interest rates steady. Additionally, the Union Budget set for February 1 will be closely watched to assess measures aimed at boosting consumption and increasing capital expenditure on infrastructure.

Market participants expect further pressure on the benchmark index unless the Nifty 50 reclaims 23,475 in the near term. Akshay Chinchalkar, Head of Research at Axis Securities, noted that breaking above this level could signal a bullish trend, while the 22,500-22,800 range remains a key area of focus for longer-term support.