Broader Market Indices Snap Three-Session Losing Streak – What Should Investors Do

The broader market indices have ended a three-day losing spree on June 16. The Nifty SmallCap 100 and the Nifty MidCap 100 closed 0.93 per cent and 0.95 per cent higher on June 16. In the previous week the Nifty MidCap 100 fell over 2.4 per cent in the three sessions to 58227.45 and the Nifty SmallCap 100 also declined 2.7 per cent to 18,374.8 level.

Why Are Broader Market Indices Gaining

In the previous week the indices fell amid increased uncertainty on account of mounting tensions in the Middle East between Israel and Iran. Another reason which contributed to the three-day decline was probable profit-booking in the small and mid-cap space by some investors. Ajit Mishra SVP, Research at Religare Broking Ltd told Outlook Money that profit-booking seems to be the immediate trigger for the decline.

“Profit booking seems to be the immediate trigger, as investors looked to lock in gains after the strong uptrend. Additionally, rising crude oil prices—driven by geopolitical tensions between Iran and Israel—have raised concerns about inflation and input cost pressures,” Mishra said.

However, the Nifty MidCap 100 and the Nifty SmallCap 100 gained on June 16 due to de-escalations between Iran and Israel and a reduction in domestic volatility as the India VIX eased 1.6 per cent to close at 14.84, indicating a reduction in anxiety among investors. On the other hand, a positive movement was seen in the benchmark indices, and the broader market also mirrored it.

Additionally, India and the US are also close to finalising the ‘early tranche’ of a bilateral trade deal according to reports. The two countries are expected to finalise the terms of the trade agreement before July 9. Notably US President Donald Trump is expected to discontinue the freeze on reciprocal tariffs from July 9 as well. A possible trade agreement is seen as a positive development for smooth trade and investment flows.

Nifty MidCap 100 Top Gainers

Shares of Indraprastha Gas Ltd (IGL), Supreme Industries and PI Industries gained the most among constituents of the Nifty MidCap index as they closed higher by up to 6.2 per cent. Earlier today shares of Indraprashta Gas Ltd gained over 7 per cent to trade at an intraday high of Rs 213.8 apiece on the NSE. The top constituents of the index by weightage such as of BSE Ltd closed lower by 0.35 per cent. Other index heavyweights such as Suzlon Energy Ltd and Max Healthcare Institute Ltd closed higher by 1.14 per cent on the NSE.

Nifty SmallCap 100 Top Gainers

Shares of Newgen Software Technologies Ltd, MCX and Atul Ltd closed higher by 4.44 per cent on the NSE and emerged as top-gainers among Nifty SmallCap 100 constituents. Earlier today Newgen Software Technologies Ltd shares surged 8 per cent to Rs 1267.8 apiece on the NSE. The top constituents of the index apart from MCX such as CDSL Ltd, Laurus Labs Ltd and Crompton Greaves Consumer Electricals Ltd ended higher by 1.99 per cent on the NSE.

How Can Investors Trade In Small And MidCap Space

Mishra told Outlook Money that new investors who wish to invest in the small and midcap space should add stocks which have strong fundamentals. He said that amid the recent downs seen in the space, investors should avoid momentum-driven names with stretched valuations.

“Currently, investors should review their portfolios and add the stocks which have reasonable valuations or strong fundamentals. It is crucial to temper return expectations and focus on companies with sustainable earnings visibility. Avoid momentum-driven names with stretched valuations. Instead, prioritise fundamentally sound businesses that offer long-term growth potential at fair prices, ensuring a balance between risk and return in the current market environment,” Mishra said.

Mishra said that existing investors with positions in the small and midcap space could consider booking partial profits in overvalued stocks and use that money to invest in stocks with sustainable earnings and strong governance. Mishra also urged investors to remain patient and avoid panic during corrections.

“It’s prudent to rebalance by booking partial profits in overvalued names and reallocating to high-conviction ideas with sustainable earnings and strong governance. Investors should remain patient and avoid panic during corrections. Staying invested in fundamentally sound businesses while maintaining diversification will help manage volatility,” Mishra said.

Rakesh Vyas, Co -CIO & Portfolio Manager, Quest Investment Advisors told Outlook Money that investors can also consider adopting a a staggered investment approach across the SMID space. He added that in periods of high volatility higher allocations can be made towards midcaps and if business environment improves, allocations can be increased towards smallcap stocks as they can potentially deliver higher returns.

"A staggered investment approach across the SMID space is advisable, with a higher allocation to midcaps in periods of elevated uncertainty. However, if the business environment improves, small-cap companies have the potential to deliver stronger earnings growth, leading to higher expected returns", Vyas said.