Midday Market Update: Sensex, Nifty crack 1% amid FII selling; mid, small-caps defy gravity as retail money flows in

The BSE Sensex nosedived over 1,000 points intraday to hit 81,336, while the Nifty 50 sank below the 24,650 mark, down more than 1 per cent. The fall comes a day after indices posted their best one-day gains in months, which experts attributed largely to short-covering and news-based momentum.

Profit booking in large-cap stocks dragged benchmark indices lower. In contrast, mid- and small-cap shares gained up to 1 per cent, driven by robust buying from retail investors and high-net-worth individuals.

Broader markets shine amid retail optimism

Contrary to large-cap underperformance, the BSE MidCap and SmallCap indices climbed nearly 1 per cent each. According to analysts, the divergence is being driven by retail and HNI money flowing into high-beta stocks, riding on sentiment generated by the India-Pakistan ceasefire and global trade relief.

“Retail crowd driving rally”: Experts decode divergence

VK Vijayakumar of Geojit Financial Services pointed out that Monday’s sharp rally was led by short-covering and enthusiastic retail participation. He added that many new-age investors tend to chase rallies and panic on corrections, which could explain the two-way action seen today.

In April, the SIP stoppage ratio surged, indicating some retail investors are still cautious. However, sentiments have quickly reversed on geopolitical easing and expectations of robust earnings.

Caution as global triggers may hurt flows

While the India-Pakistan truce is a sentiment booster, the US-China trade deal could pose risks for Indian equities, warned Vijayakumar. A “Sell India, Buy China” trend could re-emerge, drawing FPIs away from domestic markets.

G Chokkalingam of Equinomics echoed this view, adding that the US-China thaw may not be favourable for India from a foreign flows perspective.

What will drive the market now?

• Earnings momentum: Analysts expect strong Q1FY26 numbers backed by economic revival and fiscal support.

• Macroeconomic cues: CPI inflation data due today will be a key short-term trigger.

• Interest rate outlook: With inflation under control, hopes are rising for rate cuts in the second half of FY26.

While broader markets may stay resilient on the back of liquidity, benchmark indices could see further consolidation unless fresh triggers emerge.