Sensex fell today: The drop defies the global trade arrangement, as the S&P500 had reached a new high overnight. So, what is happening?
The Sensex plunged nearly 900 points to below 73,000, while the Nifty fell more than 1% today (March 13). It was the worst single-day drop for the smallcap index since December 2022, when it sank 5%, and the midcaps lost 3%. The microcap and SME stock indices fell about 5% each. All BSE-listed stocks currently have a market capitalization of ₹374 lakh crore, a reduction of ₹12 lakh crore.
The drop defies the global trade structure, since the S& P500 achieved a record high overnight, and FIIs have also purchased Indian stocks, investing $3 billion so far this month.
Sebi stress test could be a major factor for the drop, as Sebi chairperson Madhabi Puri Buch issued a froth warning on small and midcap stocks. After the market regulator requested mutual funds last month to implement a structure to protect the interests of small and midcap investors, Madhabi Puri Buch stated, “There are pockets of froth in the market. Some call it a bubble, while others refer to it as froth. It may not be wise to let that froth continue to grow.”
The head of Sebi has cautioned that “irrational exuberance” could result from valuation metrics that are unsustainable and unsupported by fundamentals.
ICICI Prudential Mutual Fund: In response to Madhabi Puri Buch’s remarks, the fund momentarily stopped accepting new lump-sum contributions to small- and mid-cap funds.
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The bulk of indexes closed the day in the red on Tuesday, including the small- and mid-cap indices, which are currently under intense selling pressure. This put significant pressure on the Indian stock market. Since February 19, more than 80% of the stocks in the BSE Smallcap index have had negative returns. Over the same time frame, Nifty has increased by around 1%.
