Mumbai: The current bout of sell-off in mid-cap and small-cap stocks deepened Friday, with respective indices posting their worst weekly declines in two years, as the rout threatens to unravel one of the rare pockets in Indian equities that remained relatively unscathed in the face of an attritional blue-chip retreat since late 2024.
Hence, the latest weakness has stoked concerns that the protracted risk-off sentiment in blue-chips may now be spreading to the broader markets, potentially denting the confidence of retail investors whose steady contributions to mutual funds have helped undergird the theoretically riskier end of the equity spectrum amid waning overseas interest in frontliners and a sliding currency.
ET BureauThe Nifty MidCap 150 fell 2.1%, and the Small-cap 250 dropped 2.8% on Friday. The BSE Sensex fell 125.56 points, or 0.17%, to close at 73,123.83, while the NSE Nifty 50 declined 87.65 points, or 0.39%, to end at 22,600, erasing a portion of the early losses.
The main indices had fallen more than 1% earlier in the day.
For the week, the Nifty Midcap 150 fell 5.26%, recording the worst seven-day fall since October 2024, while the Nifty Smallcap 250 declined 7.10%, registering the worst weekly fall since February 2025.
Friday's sell-off led to the market capitalisation of all BSE-listed companies falling 1.42% or ₹6.54 lakh crore to ₹453.45 lakh crore. In the last week, the market cap has fallen by 4.38% or ₹20.78 lakh crore.
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"Markets are driven by flows, sentiment and fundamentals, and there is high supply from FPIs as well as IPOs," said Nilesh Shah, Managing Director, Kotak Mahindra Asset Management. "Sentiment due to the current calendar year's negative returns and due to unmet expectations of tax concessions is poor."
So far in 2026, the Sensex and Nifty have retreated 14.2% and 13.2%, respectively. The Mid-cap 150 has declined 7%, while the Small-cap 250 has dropped 1.8%. Before this week, both broad market indices were sitting on gains, as domestic retail investors showed faith in the smaller shares, pouring record money into these segments through equity mutual fund schemes.
REASONABLE VALUATIONS
The correction is not an earnings collapse but reflects a broader risk-off environment and stretched valuations, said Dhruv Bhatia, Fund Manager - Equity at Edelweiss Asset Management.
"After a strong rally in the past months, stocks with weaker earnings profiles have been most exposed when sentiment turned, and liquidity tightened," he said. "The market is now demanding more reasonable valuations to justify higher discounting rates and clearer earnings delivery before the rally restarts."
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Foreign portfolio investors (FPIs) net bought shares worth ₹887.65 crore on Friday. Their total net sales in October so far total ₹51,466 crore, compared with exits worth Rs44,012 crore in September.
Domestic institutional investors (DIIs), meanwhile, remained net buyers of equities worth ₹3,235 crore Friday, taking their net purchases this month to Rs 59,110 crore.
The India VIX, the market's volatility gauge, rose 6%, indicating heightened uncertainty in the near term.
"Fundamentally, September quarter results have come in line with or ahead of expectations, but the future looks uncertain due to higher oil prices and fiscal deficit along with rupee volatility," Shah said.
Brent crude oil prices have climbed to $114.31 per barrel, marking a rise of about 6% in the last week.