Midcap index tumbles for 4th straight day: What should investors do?

Nifty Midcap index on Friday dropped a percent, continuing its downtrend for the fourth straight day as investors took to profit-booking amid persisting concerns over valuations. The midcaps gauge has shed 4.7 percent in the last three days.

The selling trend and the erosion in NAVs on midcap mutual funds may make some investors wary. Experts, however, suggest that it is not something to worry about.

The stock market has been rising in a straight line for a very long time, which is not normal, Prateek Singh, Founder and CEO, LearnApp.com told CNBC-TV18.com, while adding that indices usually move in phases, with some declines and some gains.

The midcap Nifty 100 index has gained from the last few months and a much-awaited sideways pause or a selloff is required, Singh said.

“A sell-off is not the same as a crash. It is merely a period during which a market takes a break and takes its time to recover. For example, the Nifty midcap Index was actually sideways from March to May 2021, after having gone through a rally before that. The same thing happened from September to November 2021, and right before that, there was a massive rally. Thus, a one to two months sideways movement before moving on to the next move would be quite beneficial for markets."

Singh further said that the bullish trend on the index has not reversed yet and this dip is actually beneficial. That said, no one knows if the trend will reverse or where the peak will be.

Concurring Singh's views, Arshad Fahoum, Chief Product Officer at Market Pulse said that there is nothing for which individuals who are investing in the index or through mutual funds with sufficient diversification should be fearful now.

“Overall, we are in a structural bull market and the economy is showing signs of moving into a period of prosperity. Historically, strong midcap businesses have always benefitted the most during such times. An important aspect to understand is that markets are cyclical in nature and rarely move in a straight line. These corrective phases, as and when they occur are great opportunities to analyse fundamentally strong stocks to increase one’s investments, so as to ride the continuing trend,” he said.

So, he suggested that investors should stick to their long-term investment objectives and not give in to panic trading.

Active stock pickers, Fahoum added, should identify pockets where prices are overheated and book profits and reallocate funds into businesses with strong fundamentals at every price correction.