Small, midcap stocks tumble; broader market indices snap 7-day gaining streak: Here are the top losers

Mumbai, July 1, 2025: After a consistent rally spanning seven straight sessions, India's broader markets finally hit a roadblock on Monday. The smallcap and midcap segments bore the brunt of a sharp correction, with benchmark indices snapping their winning streak amid profit booking, weak global cues, and valuation concerns.

While frontline indices like the Nifty 50 and Sensex managed to close with only marginal losses, the real damage was visible in the Nifty Midcap 100 and Nifty Smallcap 100 indices, which fell by 2.1% and 2.9%, respectively. This sudden reversal in sentiment has raised red flags for retail investors heavily exposed to the broader market space.

Market Snapshot: Broader Indices Under Pressure

In Monday’s session, the BSE SmallCap index plunged over 900 points, while the BSE MidCap index dropped by more than 700 points. This came on the back of heavy sell-offs across sectors, particularly in realty, power, capital goods, and financial services.

Among the worst-hit were:

• Suzlon Energy (down 6.7%)

• JBM Auto (down 6.2%)

• IIFL Finance (down 5.9%)

• Mazagon Dock Shipbuilders (down 5.6%)

• Angel One (down 5.2%)

• KEI Industries, Polycab, and KPI Green also featured in the top losers’ list.

Analyst Insight: “Valuations Were Getting Stretched”

Market analysts had been warning for days about the overheated valuations in the small and midcap space. The segment had outperformed frontline indices significantly in recent months, drawing strong retail and institutional interest.

“A correction was long overdue. Valuations, especially in smallcaps, had reached uncomfortable levels. Many stocks were trading 40–50% above their 5-year historical averages. Today’s decline is more of a healthy profit-booking event than a panic selloff,” said Amit Shah, Head of Research at ICICI Direct.

Richa Agarwal, Equity Strategist at Equitymaster, added: “Mid and smallcaps tend to react sharply to any negative news or global headwinds due to their lower liquidity. Investors must tread carefully, especially when earnings visibility is murky for many of these names.”

Global Cues and FII Activity Weigh on Sentiment

The correction in Indian markets coincided with mixed global cues. Asian markets remained cautious following weak manufacturing data from China and concerns about delayed interest rate cuts in the U.S. Meanwhile, foreign institutional investors (FIIs) turned net sellers for the first time in a week, further dampening domestic sentiment.

Data from the NSE showed that FIIs sold equities worth ₹1,236 crore on Monday, while domestic institutional investors (DIIs) bought shares worth ₹942 crore—partially offsetting the outflow.

Sectoral Performance: Financials, Real Estate Drag

The Nifty Realty and Nifty Financial Services indices saw the steepest falls, declining 3.5% and 2.9%, respectively. Mid-sized lenders and NBFCs like IIFL Finance, Muthoot Finance, and Bajaj Holdings were among the biggest laggards.

On the other hand, IT and pharma stocks offered some cushion, with large-cap names like Infosys and Dr. Reddy’s Labs closing in the green, supported by defensive buying.

Retail Participation Remains High, But Volatility Ahead

Retail investor participation in small and midcap counters has remained robust, especially through mutual fund SIPs and direct investments. However, the current correction is a reminder of the volatility inherent in the broader market.

“Retail investors who entered in the last few months may see some of their gains wiped out. It’s crucial not to panic and to avoid herd behavior. Instead, they should focus on fundamentally strong stocks with long-term growth visibility,” said Devina Mehra, Chairperson of First Global.

Investor Outlook: Caution Advised, Not Panic

While one day of correction doesn’t mark a trend reversal, analysts advise increased caution. The broader market has delivered strong year-to-date returns, and consolidations like these are common after a steep rally.

Market watchers suggest that investors:

• Avoid leveraged positions in volatile stocks.

• Focus on quality stocks with stable earnings visibility.

• Diversify across largecaps and defensives.

• Use corrections to accumulate fundamentally sound companies at better valuations.

“If you're in it for the long haul, there’s no reason to worry. Short-term corrections like this are a feature, not a bug, of the equity market,” said Siddharth Bhamre, Head of Research at InCred Equities.

The sharp drop in midcap and smallcap indices signals a long-anticipated pause in the recent rally. While profit-booking has triggered today’s fall, broader global uncertainties and domestic valuation pressures could keep the near-term outlook volatile. Long-term investors, however, should view such dips as opportunities—provided they stay disciplined and selective.