Why Mid-and-Small Cap Stocks Tanked Yesterday?

By Aditya Raghunath

Investing.com -- On April 12, the flagship indices of India, Nifty , and the BSE Sensex dropped 3.53% and 3.44% respectively on fears of renewed lockdowns thanks to rising COVID cases and a slow vaccination rollout.

However, the mid-and-small cap indices fell a lot more compared to the broader indexes. The NIFTY Midcap 100 fell 5.68% and the NIFTY Smallcap 100 fell 5.55%. 

Renewed lockdowns mean mid-and-small cap companies are going to be negatively impacted by a significant margin as they are more closely connected with the domestic economy. The fears of the lockdown are so high that the India VIX , a real-time volatility index, soared 16% today.

On the mid-cap index, the top three losers were Bharat Heavy Electricals Ltd. (NS: BHEL ) (down 12.33%), Indiabulls Housing Finance Ltd (NS: INBF ) (down 11.99%) and Shriram Transport Finance Co. Ltd. (NS: SRTR ) (down 11.4%). The biggest losers in small caps were Graphite India Ltd. (NS: GRPH ) (down 13.96%), NBCC India Ltd (NS: NBCC )(down 11.25%) and Indian Bank (NS: INBA ) (down 11.14%). Clearly, finance, auto, and construction sectors are taking the biggest hits.

Last week, the mid-and-small cap indices outperformed the broader markets, clearly hinting that they didn’t expect a lockdown. Now, however, matters have changed with news reports saying that Maharashtra, home to India’s financial capital Mumbai, could impose a 15-day lockdown.

Q1 FY22 which was supposed to a quarter where economic revival would really kick in suddenly appears very bleak now.