Unless the primary market momentum slows, smallcap stocks will stay subdued.
Smallcap stocks are likely to remain under pressure going ahead, suggest analysts, even as the Nifty Smallcap 100 is testing its 200-day moving average (DMA) on technical charts, placed at 17,490 levels.
The smallcap index hit an intraday low of 16,984 on the NSE on Monday, its lowest level since May 15.
The index has slipped around 13 per cent from its 52-week high of 19,598 hit on December 17, 2024.
The smallcap stocks are likely to remain under pressure on the back of liquidity constraints, said G Chokkalingam, founder and head of research at Equinomics Research.
Investors, Chokkalingam, had found favour in the primary markets, given the lacklustre performance of secondary markets in the last few months, especially the smallcap segment.
"A large number of smallcap stocks are down anywhere between 15 and 50 per cent this year.
"Retail investors with limited resources preferred to invest in IPOs rather than smallcap stocks, given their tepid showing in 2025. Unless the primary market momentum slows, smallcap stocks will stay subdued," Chokkalingam said.
Meanwhile, the Nifty Smallcap 100 index has witnessed a rather tepid year thus far, and is now threatening to break its two-year winning run.
At the current levels, the Nifty Smallcap has slipped nearly 9 per cent so far in 2025.
In contrast, the National Stock Exchange (NSE) Nifty 50 index and the Nifty Midcap 100 index are poised to end 2025 on a positive note.
The Nifty has gained nearly 10 per cent so far, while the Nifty Midcap has advanced around 4 per cent during this period.
Data from ACE Equity shows that the Nifty Smallcap index had gained 23.9 per cent and 55.6 per cent in the preceding two calendar years.
It registered a loss of 13.8 per cent in 2022. On the technical charts, the Nifty Smallcap 100 index is seen quoting close to its long-term 200-DMA.
Amid Monday's selloff, Nifty Smallcap index ended 2.5 per cent or 440 points lower when compared to the 200-DMA, which stands at 17,491.
In general, the 200-DMA is a widely used technical indicator to identify long-term trends of the underlying index or stock.
Index levels or stock prices quoting consistently above the 200-DMA tend to signal strength, while prices below the long-term average implies a likely weak trend.
That apart, analysts also consider the 200-DMA as a key psychological level from where index or stock prices tend to bounce-off.
The 200-DMA can act as a key support, and once broken it tends to act as key resistance, believe analysts.
Smallcap segment, said U R Bhat, cofounder & director, Alphaniti Fintech, has not performed as expected in 2025.
"Retail investors mostly invest in smallcap stocks, but have been investing in IPOs instead.
"The IPO calendar remains strong, and subscription levels in 2025 for most IPOs have been good till now.
"Smallcaps had their time in the sun in the last few years. Investors now prefer the safety of the largecaps.
"To that extent, upside in smallcaps remains limited," Bhat said.
What charts say?
On the technical front, the Nifty SmallCap 100 index has been facing persistent selling pressure, and has formed seven consecutive bearish candlesticks on the daily chart, cautions Amruta Shinde, technical & derivative analyst at Choice Equity Broking.
"The Smallcap index remains vulnerable as it trades below its 100-day moving average and 200-day exponential moving average, reinforcing the prevailing bearish structure.
"On the daily chart, the RSI has slipped to 33.09 and is trending downward, signalling weakening momentum and rising downside pressure," added Shinde.
According to the analyst, key support for the index is placed in the 17,000-17,200 zone, while a breakdown could trigger a fall towards 16,570, down nearly 3 per cent from the current levels. "On the upside, immediate resistance stands at 17,800, followed by 18,000," Shinde said.
Feature Presentation: Ashish Narsale/Rediff
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