Small and Midcap Stocks Going Through Biggest Correction in 10 Months

December is turning out to be a roller coaster ride for the stock market, especially the broader one. We are just 12 days into this last month of the year, and the small and midcap stocks are witnessing massive selling pressure after a significant rise in the past months. So, what went wrong that the broader markets are pulling back? Let’s try to explore in today’s article. 

Broader Market Correction 

In this month, until yesterday, 11 December 2025, the BSE Midcap index has already declined 2.7%, which is the highest fall in February 2025. On the other hand, the BSE Smallcap index fell 2.8% as well, for the 2^nd consecutive month. During this period, the Nifty and Sensex only fell by 1% each. 

This is quite surprising as the earnings are coming out to be healthy for the Q2FY26, which were earlier muted. However, the experts are suggesting that this correction is owing to the retail investors fleeing away from the broader markets owing to the sluggish returns generated in the past year, compared to the solid returns posted earlier. 

Experts also find out that the return differential between largecaps and small caps has widened to 18% which is the highest since 2008. And this is perhaps due to the poor earnings posted by the small-cap companies. 

Is it a Market Reset?

The broader markets might be falling too fast now, but they have significantly risen between March and October 2025. The BSE Midcap index gained around 21% during the period, while the smallcap counterpart gained 25% between March and October. So, some of the experts are suggesting this correction to be a reset button for the broader markets. 

Is it the In elevated valuation?

Another angle to look at it is from the valuation point of view. The BSE Midcap index is currently trading at 25.23x of its 1-year forward earnings, which is significantly above its 10-year average valuation of 23.29x. Similarly, the BSE Smallcap Index is trading at 22.6x of 1-year forward PE against the long-term average of 18.97x. 

The elevated valuations are perhaps playing a pivotal role here, along with the geopolitical scenario. The volatility in the markets is perhaps pushing the investors towards booking profits. 

Market Outlook 

Experts are suggesting that early 2026 will be a consolidating phase for the overall markets until the earnings improve, and sectoral expansion, along with a cyclical uptrend, can support the market expansion in the later months of the coming fiscal. 

While this correction may seem abrupt, it has definitely corrected the valuation of the Indian equities, which can be a significant opportunity for the long run. 

Broader Market Performance Today BSE Midcap Index today has gained 1.11% or 508 points to rise to 46460 points, which is a significant rise compared to the previous days in this month. On the other hand, the BSE Smallcap Index today gained 0.64% or 326 points at around 3 p.m., inching up to the 50888 level.

Source: https://www.moneycontrol.com

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