Broader Market Indices Face Sharper Declines Than Sensex and Nifty:

In the past two trading sessions, broader market indices such as BSE Midcap and BSE Smallcap have fallen more sharply than the benchmark indices, Sensex and Nifty. The decline was largely triggered by fresh tariff announcements from former U.S. President Donald Trump, reviving concerns about a global economic slowdown. This has dampened valuations and disrupted the recent positive momentum.

The BSE Midcap and Smallcap indices have declined by over 8% during this period, compared to nearly 5% for the Sensex and Nifty. Despite this market pullback, experts believe the drop is more reflective of investor sentiment than a change in underlying fundamentals.

Valuations See Notable Declines Across the Board

Valuations in the broader markets have seen significant moderation. The one-year forward price-to-earnings (P/E) ratios for the BSE Midcap and Smallcap indices now stand at 24.3x and 20.4x, down from earlier highs of 32x and 27x. These are now slightly below their 10-year averages of 27.94x and 21.44x, respectively.

On the other hand, Sensex and Nifty are trading at forward P/E ratios of 18.68x and 18.11x. These are marginally under their long-term averages of 19.3x and 18.53x, after slipping from peaks of 24x and 23.8x. From their respective highs, the BSE Midcap and Smallcap indices have corrected by over 21% and 24%, while Sensex and Nifty have retreated around 15%.

Opportunities for Long-Term Investors

Market experts suggest that the recent valuation correction may offer attractive entry points for long-term investors. With most of the overvaluation in broader markets now adjusted, fundamentally strong stocks could be accumulated selectively.

Mayank Mundhra, FRM – VP Risk & Head of Research at Abans Financial Services, emphasized focusing on high-quality companies. He recommended picking businesses with consistent revenue growth, stable cash flows, and solid return ratios (ROE and ROCE), especially those with strong long-term growth potential.

Technical Outlook: Market Bias Remains Negative

BSE Midcap Index

The BSE Midcap index has moved below key short-term moving averages, indicating weakened momentum. The index now sits in a corrective phase, with immediate support at 10,400. A drop below this level could lead to further downside towards 10,250. Resistance levels are seen at 11,200 and a stronger zone at 11,600. The RSI is below 36 and MACD shows a bearish crossover, both pointing to sustained downward pressure.

BSE Smallcap Index

The BSE Smallcap index appears technically weaker, having already breached its 50-day moving average. It is nearing crucial support at the 14,000 level. If this support fails, the next key level is 13,800. Upside resistance is capped near 15,500, and only a move above 16,000 would indicate a possible trend reversal. Current volume patterns show ongoing distribution, keeping short-term sentiment negative.