Is it true that small cap indices in the stock market have been hit worse than the Nifty and the mid-caps?

Since the peaks of the stock market in October 2021, the Nifty has fallen about 15% while the Mid-cap index has fallen 20%. But the worst hit has been the small cap index that has fallen nearly 28% from its peak levels. The sell-off has been a lot more severe in the small caps as compared to the large caps or the midcaps. In fact, the NSE Smallcap 100 index is down even compared to the December 2017 levels so the damage is quite intense.

In terms of sectoral performances, the month of June 2022 saw autos gaining sharply while metals and private banks were among the worst hit. However, if you look at the broad-based BSE 200, then 85% of the companies in this index are in the red. Not only the prices, but the investor interest has also reduced as the small cap volumes have almost halved in the month of June 2022 as compared to October 2021. This is despite profit improvement.

However, the story on the FPI flows has not been too encouraging with FPIs selling a record $6.3 billion worth of equities in June 2022 and have sold $35 billion since October 2021 over the last nine months. For the small cap stocks, the concerns are about their higher level of vulnerability to business cycles, rising oil prices and exchange rate volatility. Not to forget, these smaller companies are also the most vulnerable to rising inflation in commodities.