Sharp sell-off in mid- and small-cap stocks hits Indian markets despite index gains

Despite a positive session for India’s benchmark indices, the April 22, 2025 trading day exposed growing vulnerabilities in broader market segments. While the BSE Sensex rose by 187.09 points to close at 79,595.59 and the Nifty 50 added 41.70 points to end at 24,167.25, a significant number of mid- and small-cap stocks experienced sharp declines, signalling rotational shifts and sectoral stress beneath the surface.

Stocks such as GNA Axles, Jind Drill, Cholamandalam Investment and Finance, and Sanghvi Movers fell sharply, reflecting investor concerns around sector-specific risks, macroeconomic headwinds, and profit-taking in previously overbought counters. The day’s action underscores a divergence between headline market indices and underlying equity breadth, suggesting a more complex and cautious investor mood.

What triggered the steep fall in GNA Axles and Jind Drill?

Leading the list of top losers, GNA Axles dropped 7.76 percent to ₹345.10. The automotive component manufacturer, known for its axles used in commercial vehicles, has historically benefited from strong export demand, particularly in North America. However, the company’s fortunes remain closely tied to global automotive cycles, which are currently under strain due to reimposed US tariffs and rising input costs. The recent correction may also reflect investor anxiety over earnings pressure as cost escalation and shipping delays continue to affect margins.

Jind Drill, which caters to the infrastructure, mining, and oil exploration sectors, saw its stock fall 7.25 percent to ₹739.00. Despite strong order books in recent quarters, the company is grappling with slower execution rates amid delays in state-led capital expenditure. Historically, infrastructure-related stocks tend to underperform during periods of political uncertainty, and Jind Drill appears to be mirroring that cyclical trend.

Why are financial stocks like Cholamandalam Investment underperforming?

Cholamandalam Investment and Finance Company fell nearly 6 percent to ₹1,561.00, reversing gains accumulated over the last month. This underperformance occurred despite liquidity-boosting measures recently announced by the Reserve Bank of India, including the relaxation of liquidity coverage ratio norms, which are expected to release over ₹2.9 lakh crore into the banking system. Analysts point to a combination of profit-booking and a cautious stance toward non-banking financial companies (NBFCs), particularly in the retail loan segment where competition and delinquencies are both rising.

CSL Finance, another NBFC with exposure to the SME segment, declined 5.23 percent to ₹325.00. The fall reflects broader apprehensions over credit growth sustainability in a high-rate environment and potential asset quality risks if growth moderation persists into the next fiscal year.

Are micro- and small-cap stocks losing momentum?

Beyond the large institutional names, speculative counters and micro-cap stocks witnessed aggressive unwinding. AF Enterprises Limited slumped 6.28 percent to ₹7.91 following heavy volume activity exceeding 31 lakh shares. Eurotex Industries declined nearly 7 percent to ₹14.41, while other penny stocks such as LPDC, TPHQ, Gate Tech DVR, and Agstra fell by around 5 percent each.

These stocks are typically thinly traded and lack institutional backing, making them vulnerable to abrupt sentiment shifts. Historically, such stocks see exaggerated price swings due to limited liquidity and short-term retail participation. Regulatory tightening from SEBI on price manipulation and circuit filter violations has further curbed momentum in these names, contributing to the correction.

What role did macroeconomic data play in today’s market divergence?

India’s economic backdrop remains relatively supportive, but global and domestic headwinds are beginning to weigh on investor expectations. The Reserve Bank of India’s latest economic bulletin painted a cautiously optimistic picture, citing strong domestic demand, healthy investment flows, and controlled inflation. Retail inflation for March eased to 3.34 percent—its lowest in five years—paving the way for potential interest rate cuts in the coming quarters.

However, the International Monetary Fund recently lowered India’s GDP growth projection for 2025 to 6.2 percent, down from 6.5 percent, citing rising global trade frictions, especially due to the U.S. tariff overhaul. Such developments have revived concerns around India’s export-oriented sectors and triggered renewed volatility in companies with significant international exposure.

Crude oil prices hovering around $89 per barrel and persistent geopolitical tensions in the Middle East have also added to inflationary risks. While these factors have yet to fully reflect in the headline indices, their impact is clearly visible in individual stock corrections, particularly among industrials, logistics, and manufacturing plays.

Which sectors showed relative weakness?

The industrials sector was hit particularly hard. Sanghvi Movers dropped 5.24 percent to ₹300.89. As a leading crane and equipment rental provider, the company’s fortunes are tied to infrastructure activity, which has seen uneven progress this year.

Metals and engineering stocks also struggled. Shah Alloys fell 5.01 percent, while AKSH Optifibre, a maker of optical fibre cables, lost 5.05 percent amid subdued demand from the telecom sector and declining export orders. These companies operate in capital-intensive industries and often face volatile demand cycles, which become more pronounced during economic slowdowns or policy transitions.

How are retail and consumer-linked stocks faring?

Consumer and retail-facing businesses experienced mixed trends. While blue-chip FMCG stocks gained modestly, lower-tier discretionary players like Retail and Premier witnessed steep sell-offs. Retail ended 5.05 percent lower at ₹36.26, and Premier fell 5.15 percent to ₹3.13. These counters have low trading volumes and are heavily influenced by sentiment shifts in consumption outlook, particularly in rural and Tier-II markets, where inflation still poses a constraint on discretionary spending.

Additionally, Shanti Gears, Shahl Alloys, and Binani Industries—companies with historical volatility—continued to slide, indicating a broader trend of capital moving away from high-risk names toward stable, dividend-paying blue chips.

Are institutional investors influencing the correction?

The divergence between index performance and individual stock declines is also reflected in institutional flow patterns. On April 22, Foreign Institutional Investors (FIIs) were net sellers to the tune of ₹875 crore, driven by global risk-off sentiment and renewed concerns around US bond yields and capital flows. Conversely, Domestic Institutional Investors (DIIs) remained net buyers, absorbing ₹950 crore worth of equities. This consistent DII support has underpinned the resilience in frontline indices, even as broader markets show signs of fatigue.

Analysts tracking fund flow data believe that while FIIs are selectively exiting high-beta exposures, DIIs are consolidating positions in large-cap defensives and earnings-resilient plays. This two-speed market, with institutional divergence at its core, is likely to persist until there is greater clarity on global economic policy trajectories.

As India’s markets enter a crucial phase ahead of the Q4 FY25 earnings cycle, investor focus is shifting to quality, stability, and cash-flow strength. While broader macroeconomic indicators remain supportive, sectoral pressures and global linkages are driving volatility at the stock level. The top losers of April 22 serve as a timely reminder that while indices may rise, underlying market health is best judged by breadth, consistency, and fundamentals.