NSE MD and CEO Ashishkumar Chauhan has issued a warning to small investors amidst the recent market turmoil. As the markets witnessed the worst single-day fall for smallcap index since December 2022, Chauhan emphasized that investors who do not have the capacity to manage high risk levels should steer clear of the riskier parts of the market.
The smallcap index fell by 5% today (March 13), while the midcap index lost 3% and microcaps as well as SME stock indices dropped around 5% each. This significant downturn has raised concerns among market participants, prompting caution from industry experts.
Chauhan stressed the importance of using leverage only for investors who can afford the risk, highlighting the need for higher entry barriers for risky products. Speaking at the SEBI-NISM Research Conference, he pointed out that while the Equity F&O size may seem large, the premium volume is less, indicating potential risks for inexperienced investors.
ICICI Securities also weighed in on the situation, noting that the market breadth is declining, signaling a mean reversion in mid/small cap stocks from an overbought trajectory. The recent rally of 35% in mid and small cap indices since October 2023 has raised concerns about a potential correction in the market.
In response to the market conditions, ICICI Prudential Mutual Fund announced that it will not accept lump sum money in its mid- and small-cap schemes from March 14, further highlighting the cautious approach being taken by industry players.
Sebi chief Madhabi Puri Buch echoed these sentiments, warning about the “froth” in small and mid-cap stocks with “off the charts” valuations that indicate potential price manipulation. Buch emphasized that the current valuation parameters are not supported by fundamentals, labeling the situation as “irrational exuberance.”
As the market continues to face volatility and uncertainty, it is crucial for investors to exercise caution and carefully assess their risk tolerance before venturing into the riskier segments of the market. Stay informed on business news and market updates to make well-informed investment decisions in these challenging times.
