How bad is too bad in Stock Market Smallcap Bubble?

How bad is too bad? The carnage in small-cap stocks wiped out Rs 9 trillion, accounting for 50% of the market capitalization loss.

Stock market values   have fallen sharply since February 19, with small-cap stocks taking the biggest hit. As a result of this market correction, more than 9 trillion rupees of investor wealth were lost, accounting for more than 50% of the total value loss. However, small-cap stocks rebounded on March 14, with the BSE small-cap index rising more than 3% after falling 12% since peaking on February 19.

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Small-cap stocks have performed significantly over the past year, far outperforming large-cap stocks. From April 1, 2023 to February 19, 2024, the BSE Sensex gained around 24%, while the BSE Smallcap gained 71%. However, small cap stocks have been correcting over the past three weeks due to a confluence of factors, including ED raids on large market operators and related entities, Sebi flagging a 'bubble' in the market and asking mutual fund trustees to Watch out for inflows into the small and mid-cap market, as well as commissioned liquidity stress tests that spread concerns about mutual fund unwinding to "look good." Market participants have also become concerned that the Reserve Bank of India may try to stem the inflow of funds into the stock market.

Small-cap stocks are labeled as "bubbles" in the market and are the trigger for this round of decline.

The fact that small-cap stocks have risen significantly more than large-cap stocks can also be considered a mistake in order to correct the market.

Behind the sharp rise in small-cap stocks is the result of manipulation by institutional investors. However, after being labeled as a bubble, the fastest runners were also institutional investors.

Institutional investors are always the most vigilant in the market. When a risk warning occurs in the market, their first reaction is to vote with their feet.

When the overall environment fluctuates, if you cannot stay with the institution, you will surely become a victim of market fluctuations and adjustments.