Indian Stock Market on 27.01.25

The small-cap segment of the Indian stock market suffered heavy losses for the second consecutive session on January 27, as weak quarterly earnings and foreign portfolio investor (FPI) outflows triggered widespread selling. The Nifty Smallcap 100 index plunged 4.6%, marking its steepest intraday drop since August 2024 and hitting its lowest level since mid-June. The index has now shed nearly 9% in just five trading sessions and is down 17.6% from its December all-time high of 19,716.

A lack of positive surprises in the December quarter results is fueling investor concerns over small-cap valuations. Stocks like Atul, Trident, Intellect Design Arena, and Central Depository Services (India) faced losses ranging from 2% to 11% after their earnings announcements. Other companies, including Tejas Networks, Swan Energy, and Piramal Enterprises, also declined sharply, with losses between 6% and 12%. As of late Monday, nearly a quarter of the Nifty Smallcap 100 constituents had fallen more than 5%.

Despite the correction, analysts believe small-cap valuations remain stretched. The Nifty Smallcap Index returned 24% in 2024, almost double its 10-year average, even factoring in December’s pullback. According to Trendlyne data, 85 stocks in the Nifty Smallcap 100 basket are in bear territory, having lost over 20% from their one-year highs.

The broader market also faced significant pressure, with the Sensex and Nifty 50 indices closing 1% lower. The Sensex dropped 824 points to settle at 75,366.17, while the Nifty 50 ended the session at 22,829.15, down 263 points. Midcap and small-cap indices underperformed, with the Nifty Midcap 50 and Smallcap 100 indices falling 2.68% and 3.88%, respectively.

Investors bore the brunt of the sell-off, with the market capitalization of BSE-listed firms falling by ₹10 lakh crore in a day, dropping to ₹410.2 lakh crore.

Global markets were also under strain, as euro zone bond yields fell and investors shifted to safer assets amid a tech sell-off sparked by competition from a Chinese low-cost artificial intelligence model.

Gold prices in India edged lower, with 24-carat gold slipping ₹10 to ₹8,258.3 per gram, while silver fell ₹100 to ₹100,500 per kilogram.

The ongoing correction in the small-cap space highlights the market’s sensitivity to high valuations and lackluster earnings, with analysts warning of further downside risks unless a positive trigger emerges.