32% smallcap stocks hit 52-week lows within 60 minutes! Should you average loss-making positions?

A total of 302 BSE Smallcap index stocks, accounting for 32 per cent of 936 index constituents, hit their fresh 52-week lows within the first hour of Monday's trade, as the benchmark index fell another 2 per cent, sending jitters down retail investors' spine. They included names such as BEML Ltd, Cyient DLM Ltd, IRCON International, Mastek Ltd, Karnataka Bank Ltd, Titagarh Rail Systems Ltd and VIP Industries Ltd.

Others included Texmaco Rail & Engineering Ltd, Finolex Cables Ltd Snowman Logistics Ltd, RR Kabel, RITES Ltd, Bajaj Electricals Ltd and Bata India, among others.

The deepening panic in the country’s smaller share segments signals a challenging environment for investors in the near term, said Ashika Stock Broking said in its March note. "The Nifty midcap and smallcap indices have already experienced significant corrections of 21 per cent and 30 per cent, respectively. The possibility of an additional 3-5 per cent drop cannot be ruled out in the near term, the brokerage said.

Overall, 854 stocks out of 3,675 that traded today hit their one-year lows within the first hour of trade. They mostly included smallcap names, thanks to concerns over relatively higher valuations vis-a-vis largecaps. Add to that weak Q3FY25 performance led to sharp downward revisions for FY25 (13 per cent) and FY26 (10 per cent) consensus earnings estimates. This was against minor cuts for large cap earnings estimates.

With a 2.3 per cent drop today, the BSE Smallcap index has taken its year-to-date losses to 25 per cent now.

"Traders and investors should exercise caution in stock selection and risk management, avoiding the temptation to average down loss-making positions or engage in bottom fishing, particularly in the midcap and smallcap segments," said Ajit Mishra – SVP, Research, Religare Broking.

Vikram Kasat on Market, Head - Advisory at PL Capital said despite the correction, midcap and smallcap stocks continue to be more expensive than their 5-year averages. The decline in largecap stocks (below their 5-year average P/B) and the higher P/B ratios of mid and smallcaps (above their 5-year averages) suggest a normalisation of valuations, he said.

The recent global developments have sparked considerable anxiety, resulting in a frantic sell-off that has reverberated across every sector, plunging equity investors into a state of turmoil, said Sameet Chavan of Angel One.

He noted that the technical support levels, which typically provide a buffer against sharp declines, have been mercilessly tested and compromised, leaving investors feeling as if their strategies have crumbled like a house of cards.

"Looking at the ongoing scenario, it is advisable to avoid aggressive bets and stay light on positions on either side. Simultaneously, the vulnerability of the market emphasises the need for traders to remain vigilant and consider risk management strategies as market conditions evolve," Chavan said.