A 'caution for longs', warn experts, as Sensex tanks by 906 points, Nifty by 338

• A market-wide correction was seen with large caps falling along with mid and small caps.
• Nifty’s fall below the 22,000 mark should be taken as an indication of ‘caution for longs’, say experts.
• Premium valuations are the only drawback with small-caps, fundamentals are strong, say stock experts.

Stock markets came under severe selling pressure on Wednesday, after retail inflation numbers did not provide any comfort to investors. Along with a sharp correction in mid and small-cap stocks, even large-cap stocks came under selling pressure.

Frenzied selling was seen towards the end of the session and Sensex was dragged down by 906 points to settle at 72,761 Nifty too fell below the 22,000 mark as it shed 338 points to settle at 21,997.

"It seems like largecaps have joined the correction in smallcaps and midcaps which have been under severe selling pressure in the last few days. Nifty has a derivatives support at 22,000 so any sustenance below the same should be taken as an indication of caution for longs," said Rahul Sharma, head-technical and derivatives research at JM Financial Services.

Investors turned negative on PSU, metal, real estate and power stocks. Nifty FMCG was the only sectoral index that closed marginally in the green. ITC was amongst the top gainers on both Nifty and BSE, gaining as much as 4%. ICICI Bank, Kotak Bank, Bajaj Finance and Cipla were the other top gainers on Nifty50.

“The only silver lining today has been in select private banks and FMCG stocks which have held their ground amidst a market-wide selloff," added Sharma.

The top losers on Nifty are mostly PSUs like Power Grid and Coal India, which shed over 7% of their value, and NTPC fell by 6.7%. Adani stocks like Adani Enterprises and Adani Ports also fell by over 6%.

‘Valuations affecting small-caps, not fundamentals ’

Small and midcaps, however, slipped much higher with Nifty Midcap 100 falling by 4.4% and Nifty Smallcap 100 falling by 5.2%. They have been correcting for the last few days, but today’s fall was much sharper.

“There have been concerns over the rising valuations of mid and small-rung stocks for a while, and with the regulator too highlighting these concerns, traders preferred to trim their exposure which resulted in a massive correction across the board,” observed Prashanth Tapse, senior VP of research at Mehta Equities.

Experts believe that while small and midcap stocks have good potential, they have risen too high to sustain at these levels.

“Unfavourable risk-reward balance of mid and small-cap stocks, fuelled by prolonged premium valuations, has aggravated the downfall. Other than the premium valuation no fundamental issue is noticed to drawback the long-term growth image of domestic midcaps,” said Vinod Nair, head of research at Geojit Financial Services.

February retail inflation print came in at 5.09%, which did not offer any comfort to investors. Due to high and persistent food inflation, experts believe that there would be no action from the Indian central bank in the upcoming April policy. This has sent stock market investors into ‘wait and watch mode’ before making longish bets.

Energy, infra & metal stocks slip