BENGALURU: Indian shares recovered from a muted start on Tuesday, led by financials and information technology stocks, while profit taking continued in small- and mid-caps on concerns of froth and “irrational exuberance.”

The blue-chip NSE Nifty 50 index added 0.49% to 22,441.85, while the BSE Sensex rose 0.66% to 73,987.81, as of 10:09 a.m. IST.

The broader, more domestically-focussed small- and mid-caps lost 0.75% and 0.5%, respectively, underperforming the benchmarks.

India’s markets regulator on Monday flagged froth in the segments, and recommended that mutual fund trustees evaluate lump sum investments into the small- and mid-cap funds.

“Sentiments have been dampened after SEBI highlighted irrational exuberance in small- and mid-caps. This is likely to keep the pressure on the broader market,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

“We expect consolidation in blue-chips to continue and recommend switching to large caps from small- and mid-caps,” Khemka added.

Small- and mid-cap stocks lost 5.5% and 1.1%, respectively since SEBI sought more disclosures on Feb. 27, underperforming the 1% rise in Nifty 50.

Financials, Tata stocks weigh on Indian shares; small-caps underperform

On the day, high weightage financials rebounded 0.9% after dropping 0.7% in the previous session.

ICICI Lombard advanced 1.6% after reporting a 39% year-on-year growth in gross direct premium in February.

IT gained 0.7% ahead of key US inflation data, which could influence the timing of Federal Reserve rate cut.

IT companies earn a significant share of their revenue from the US Investors also await India’s CPI data, which is expected to have declined to a four-month low in February, according to a Reuters poll of economists.

The data is also due after market hours.

Fast moving consumer goods shed 1%. ITC lost 2.5% after British American Tobacco said it is considering a potential disposal of some stake in the company.