This is the third post in which we will use the concept of ‘market capitulation’ to gain some insight into the current state of the Indian market.

Put simply, market capitulations are periods of surrender marked by panic, loss of confidence, and a surge in emotional selling. They often lead to good buying opportunities.

Historically, during such periods, investors have tended to give up on riskier pockets and seek haven in safer ones.

A stand-out example of this phenomenon in action is the small- and mid-cap (SMID) space.

Consider the chart below*, which shows the SMID traded value as a percentage of large caps.

The brown patches indicate periods of volatility where the Nifty MidSmallCap 400 declined by more than 20% from its 52-week high.

As the line graph indicates, these declines were accompanied by a significant drop in the money traded in the SMID space.

Let’s zoom in on all of these declines and pull up some numbers for them*:

If you exclude the current decline phase (from Sep 2024 to Mar 2025), then the ratio of the money traded in the SMID segment as a percentage of the large-cap segment saw declines ranging between 21% and 73%, as can be seen in the right-most column.

However, at least so far, the current decline phase has proven to be an anomaly. The shyness and aversion to risk that had historically caused hurried exits in favour of large caps are conspicuously absent.

The ratio of SMID / Large is still at 0.9 — quite close to the level seen in September 2024.

What does this mean? Well, this could be a sign of increasing maturity in the Indian markets.

Conversely, it could be a sign that we are still far from a market capitulation.

So investors who are OK with entering the market when everyone else is panic-selling would do well to keep an eye on this metric.

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.

* Source: Bloomberg, NSE, DSP. Data As of Mar 2025. Nifty100 traded value (20-Day Avg) is considered for Large Caps. Nifty500 traded value (20-Day Avg) minus Nifty100 traded value (20-Day Avg) is considered for Mid & Small Caps.