Nifty, Sensex bleed as bears mow benchmark indices down by over 1% | Three things that led to the crash

The volatile trading session on Wednesday ended with the benchmark Sensex and Nifty 50 indices eking out earlier gains, plunging up to 1.5 per cent in the red. The 30-share BSE Sensex index bled over 906 points (1.23 per cent), dropping to 72,761.89 level. The broader Nifty 50 index, too, fell from its 22,000 perch. It tumbled 338 points (1.5 per cent) to 21,997.7 points.

Even in the broader market, bears reigned supreme. Here are three reasons why Dalal Street was painted red on Wednesday:

Midcap, smallcap stocks under pressure

Smallcap and midcap indices recorded a steep fall. While BSE MidCap index was down over 4 per cent, BSE SmallCap had slipped 5.11 per cent. Nifty Midcap 50 closed 3.86 per cent down and Nifty Smallcap 50 registered losses of 5.25 per cent.

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“Key equity benchmarks lost their earlier gains […] The overall sentiment of the market is negative as we have seen sharp decline in the midcap and smallcap index,” Choice Broking’s Deven Mehata told Firstpost.

“Unfavourable risk-reward balance of mid and smallcap stocks, fuelled by prolonged premium valuations, has aggravated the downfall,” Vinod Nair, Head of Research at Geojit Financial Services told us.

In recent times, small and midcap shares have been under pressure, primarily due to the Securities and Exchanges Board of India’s (SEBI) demanding that mutual funds make disclosures regarding such shares. The markets regulator was concerned about the froth building up in small and midcap mutual fund schemes.

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Sell-on-rise strategy

Kunal Shah, Senior Technical and Derivative Analyst at LKP Securities told Firstpost about a “sell on rise” trend in the market.

The means that investors sell their assets when the price rises to a predetermined resistance level. The idea is to take advantage of short-term price increases to secure profits. The strategy is likely being used because the markets have shown volatility and frequent price fluctuations in recent times.

Selling in largecap PSU stocks

Largecap public sector stocks Powergrid, NTPC, and Coal India were top losers in both Sensex and Nifty indices. The shares were down up to 7.28 per cent at the time of market closing. These dragged the indices, as well as the broader indices lower on Wednesday, likely due to profit-booking.