'Midcaps and smallcaps are the 'go-to segments' for retail investors.'
Key Points
- Nifty Midcap 50 and Nifty Smallcap 50 touched fresh lifetime highs, outperforming the benchmark Nifty 50 during FY27.
- Retail investor participation and sustained mutual fund inflows continue to drive strong momentum in midcap and smallcap stocks.
- Several midcap and smallcap companies have delivered exceptional returns, with some smallcap stocks rallying more than 100 per cent.
Stocks of midcap and smallcap companies gained ground, with the Nifty Midcap 50 and Nifty Smallcap 50 indices hitting their lifetime highs of 18,106.85 and 9,648.45, respectively, in intraday deals on Monday.
Thus far in 2026-2027 (FY27), both these indices have gained nearly 21 per cent and 29 per cent, respectively, as compared to 8.5 per cent rise in the Nifty 50 index.
On an intraday basis, the Nifty Smallcap 50 index slipped to 9,517.25 on Monday, while the Nifty Midcap 50 index hit a low of 17,910.60 as a knee-jerk reaction to the geopolitical developments in West Asia over the weekend.
However, both the indices recovered by close, and gained up to 0.2 per cent each. The Nifty Smallcap 50 hit a fresh closing high of 9,638.20 on Monday (previous high of 9621.15 reached on July 10 this year), while the Nifty Midcap 50 ended at a new high of 18,089.55, surpassing its last high of 18,059.50 hit on July 10.
The rise in the midcap and smallcap segments in FY27, analysts said, has been mostly on account of retail investors who continue to remain bullish on these categories.
Since foreign investors dabble mostly in largecap stocks, they have been laggards amid fading foreign institutional investor (FII) interest in Indian equities, highlighted U R Bhat, cofounder and director, Alphaniti Fintech.
"Midcaps and smallcaps are the 'go-to segments' for retail investors. Mutual funds, too, have been getting a good subscription in midcap and smallcap categories and, in turn, they have been deploying the collection in these segments. I expect this to continue for some more time," Bhat said.
Among individual stocks, Bharat Heavy Electricals, Laurus Labs, Prestige Estates Projects, and Godrej Properties are some of the midcap counters that have gained up to 61 per cent thus far in FY27, data shows.
On the other hand, Aegis Logistics, Welspun Corp, Neuland Laboratories, Himadri Speciality Chemical, and Bandhan Bank are some of the smallcap stocks that have zoomed up to 108 per cent during this period.
Midcap Earnings Growth Improves
According to analysts at Abakkus Mutual Fund, earnings growth within the broader midcap segment is showing signs of an improvement.
As earnings continue to improve, strong fundamentals and attractive valuations, they believe, may support mean reversion and potential catchup in select stock prices.
"That apart, markets are increasingly rewarding businesses with strong fundamentals rather than broad market participation. With valuations becoming more reasonable and earnings outlook improving, we believe the category offers an attractive avenue for long-term wealth creation through disciplined investing," said Vaibhav Chugh, chief executive officer at Abakkus Mutual Fund.
On the technical charts, too, the setup for midcap and smallcap stocks remains in favour of the bulls, suggest analysts.
According to Hitesh Rathi, technical analyst (equity and derivatives) at Angel One, the smallcap index has given a convincing breakout above its prior resistance zone (9,261), signalling a resumption of the broader uptrend.
"Further, candlestick patterns suggest that buyers have regained control across multiple timeframes. It can rally to 11,050 levels in the short term, translating into an upside potential of around 15 per cent from current levels," he said.
Echoing a similar bullish stance, Anand James, chief market strategist at Geojit Investments, sees up to 5 per cent upside on both the indices, and expects the smallcaps to outperform the midcaps in the near term.
Feature Presentation: Aslam Hunani/Rediff
