Amidst a prolonged bull run in equity markets, experts highlight the outperformance of midcap and smallcap segments compared to their larger counterparts. As of December 22 this year, the BSE smallcap index surged by 45.20%, with a jump of 13,074.96 points, while the midcap index soared by 41.74%, gaining 10,568.18 points. In contrast, the BSE 30-share benchmark Sensex rallied 16.87%, marking a rise of 10,266.22 points during the same period.
Both the smallcap and midcap indices reached their all-time highs on December 20—42,648.86 points for the smallcap index and 36,483.16 points for the midcap gauge. On the same day, the BSE benchmark also hit its lifetime high at 71,913.07 points.
Analysts attribute this exuberance in the equity markets to better domestic macroeconomic fundamentals and retail investor confidence. Mukesh Kochar, National Head of Wealth at AUM Capital, emphasizes that strong overall economic conditions tend to favor the performance of small and midcap segments. Terming 2023 as an exceptional year for equity markets, Kochar notes a significant high with widespread participation, particularly highlighting the emergence of PSU, defence, and railways as major performers.
However, despite the upbeat sentiment, experts foresee potential corrections in smaller stocks after their substantial rally throughout 2023. The market recovered its momentum after a turbulent start, with smallcap and midcap indices hitting their 52-week lows on March 28 this year, rebounding significantly since then. The market encountered challenges from various global and macroeconomic issues, including foreign investors’ selling, elevated U.S. interest rates, and conflicts in the Middle East, which disrupted the markets in October. Nonetheless, November and December witnessed a rebound, showcasing the resilience of these segments.
Analysts point out that local investors typically favor smaller stocks, whereas overseas investors tend to focus on blue chips or larger firms, underlining the distinct investment preferences between these segments.