Stock market today: Midcap, smallcap shares hit hard; Sensex, Nifty take beating; here's why 

Every six of seven stocks on BSE tumbled in Friday's trade, as benchmark indices cracked on anemic quarterly results and a surge in US treasury yields ahead of the US elections. Strong FPI outflows are making investors jittery and 'Buy on dips' is proving to be futile. 

Friday marked the sixth day of consecutive fall for domestic indices. In the past 10 sessions, these indices are down in 8 occasions. Midcap and smallcap stocks have taken even bigger hit.   

The BSE Sensex fell 486.94 points, or 0.61 per cent, to 79,578.22. Midcap and smallcap indices plunged 2-5-3 per cent. IndusInd Bank and RBL Bank have plunged sharply following their quarterly results; Bajaj Auto and other auto shares were down recently on festive demand concerns.

What history suggests 

Historically, over past two decades, a 7-10 per cent correction in a bull market is a common phenomenon, ICICI Securities said.

"Buying in such scenario have been fruitful from medium term perspective. Hence, accumulating quality large caps would be the prudent strategy to adopt amid ongoing earning season as key Nifty support is placed at 23,900 as it price parity of election outcome day decline of 9 per cent coincided with August low of 23,894," said ICICI Securities.

US elections
Emkay Global hosted Ashok Malik, Partner and India Chair at The Asia Group to discuss geopolitical challenges. The key takeaway was that a Harris presidency would likely be a continuation of the Biden doctrine, though she is an unknown quantity at this time, the long-term strategic partnership would continue. 

"The big challenge of a Trump presidency would be the tariffs – though China is the main target, India will also feel the effects. Also, the impact of Trump’s domestic-oriented policy is a key imponderable at this point," the brokerage noted.

On Friday, Nifty was trading at 24,130.95, down 268.45 points or 1.10 per cent. With the massive, sustained  and unprecedented selling by the FIIs, which has touched Rs 98,085 crore this month and the 'Buy on dips' strategy is simply not working, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Earnings downgrade

"More important, the consensus downward revision in FY25 earnings estimate and the weak Q2 numbers have soured the sentiments to slightly bearish mode. The positive factor is the sustained flows into mutual funds that is helping DIIs absorb the massive FII selling. This can provide resilience to the otherwise weak market where even after the 7 per cent correction there is no valuation comfort, except in pockets like largecap financials," he said.

A total of 3,154 stocks fell while only 589 shares were trading higher. A total of 447 stocks in fact hit their lower circuit limits today.  Growth stocks are likely to be more resilient in this market where value is hard to come by, Vijaykumar said.

Developments in the lead-up to the US election, economic recovery in China, business activity during the festival season, US bond yield movements, oil price trends, and fund flows are expected to introduce volatility to the Indian equity market, which could react in either direction depending on how these events unfold, Axis Securities said.

"In the near term, some capital allocation may shift towards China, given the latest developments there," it said.