Indian equity benchmarks after a positive opening pared all their early gains and ended in the red in a highly volatile session. Sensex ended with a drag of 0.78 per cent or 638.45 points at 81,050, while the Nifty50 index ended 0.87 per cent or 218.85 points lower at 24,795.75.

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Meanwhile, broader markets experienced a still sharper correction, with Nifty Midcap 100 and Nifty Smallcap 100 indices down up to 2.5 per cent. 

Bank Nifty also played spoilsport and ended with a substantial decline of 2 per cent.

Atul Parakh, CEO of Bigul held that mid and smallcap stocks have experienced recent declines, despite posting strong year-to-date gains. This underperformance is mainly attributed to geopolitical tensions, particularly the Iran-Israel conflict, which prompted a market correction. Furthermore, the anticipation of a 25 bps cut in November has exacerbated the situation. 

Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers saidt he markets have been experiencing significant profit booking recently, alongside a large sell-off by Foreign Institutional Investors (FIIs). This trend, which has been ongoing for the past week, has unsettled investor sentiment, creating a more cautious and risk-averse atmosphere. Investors, having seen gains in the recent past, are now looking to lock in profits, further contributing to the downward pressure on market indices.

While recent valuations in the mid and smallcap segments appear stretched and the high volatility in these segments of the industry has amplified the corrections, many experts still identify growth potential in specific companies within these segments, adds Parakh.

Within the Nifty50 pack top gainers included stocks like ITC, Bharti Airtel, Infosys, Cipla and Nestle, while laggards within the pack include stocks such as NTPC, Adani Ports, Power Grid Corporation, Coal India and Bharat Electronics.

Investors must adapt a case-by-case approach to analyse investment opportunities, considering their risk tolerance, as mid and smallcaps are advisable for investors with a higher risk tolerance.

Solanki meanwhile added In addition to the internal market dynamics, geopolitical concerns are also playing a role in shaping short-term market direction. The escalating tensions between Iran and Israel have introduced a level of uncertainty and risk that investors find difficult to ignore. Any potential military conflict in the region could disrupt global oil supplies and increase volatility in energy markets, which in turn impacts broader financial markets. This uncertainty adds to the already fragile investor sentiment, making it harder for the markets to find a clear direction in the near term.

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