Reasons for the correction
High valuations are the primary reason behind the correction in mid and smallcap stocks. "When valuations are on the higher side, anything can become an excuse for a correction," says Jatin Khemani, managing partner and chief investment officer (CIO), Stalwart Investment Advisors LLP, a New Delhi-based Securities and Exchange Board of India (Sebi)registered portfolio management services firm.
The current dip may be attributed to disappointment with second-quarter earnings and an alternative investment opportunity arising from the Chinese stimulus, which prompted foreign institutional investors (FIIs) to withdraw ₹1.25 trillion from the Indian market.
Global factors have worsened the sentiment. "Uncertain global macros in light of the big win by Donald Trump in the US elections also contributed to the correction," says Sandeep Daga, managing director and CIO, Nine Rivers Capital.
State elections-related uncertainty also played a part.
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