'Midcaps and smallcaps are the 'go-to segments' for retail investors.'
Liquidity stress in smallcap funds has fallen to its lowest level since February 2024, with the average time to liquidate 50% of portfolios dropping to 27 days in June from a peak of 44.2 days in January 2026, driven by a sharp recovery in smallcap stocks and increased trading volumes.
Investors now have 27 passive smallcap funds to choose from 17 index funds and 10 ETFs.
Most actively-managed equity mutual fund schemes outperformed their benchmarks despite volatility across domestic equity markets during the past year.
Unless the primary market momentum slows, smallcap stocks will stay subdued.
Despite geopolitical tensions and FII outflows, Indian small and midcap stocks have not only recovered losses but are also outperforming largecap indices, driven by attractive valuations, domestic institutional support, and a rebound in earnings.
The remarkable rise of smallcaps reflects the emergence of a broad set of specialised businesses operating in industries where the sectoral tailwinds remain considerably stronger than macroeconomic headwinds, points out Debashis Basu.
IT stocks had their worst first half fall in decades, with the Nifty IT index declining 31% in the January-June 2026 period, its biggest decline in the first six months of a calendar year since 2003.
New dematerialised (demat) account additions in India reached a six-month high in July, with 2.89 million new accounts opened, driven by a buoyant initial public offering (IPO) market and a broad-based rally in equities.
Indian benchmark indices, Sensex and Nifty, staged a moderate rebound after a significant correction in the previous session, driven by foreign fund inflows and a largely positive trend in global markets, though geopolitical tensions between the US and Iran continued to foster caution.
Net inflows into smallcap funds surged 39 per cent M-o-M to a record Rs 7,768 crore, while midcap fund inflows rose marginally to Rs 6,192 crore.
Indian benchmark indices Sensex and Nifty closed flat, paring early gains due to renewed hostilities between the US and Iran, which unsettled investor sentiment and led to profit booking in metal, oil & gas, and telecom shares.
This marks a rebound after more than two years of underperformance during a strong rally in smallcap stocks.
Foreign investors have largely been exiting one part of the market while domestic investors have been enthusiastically accumulating another, points out Debashis Basu.
Accenture's revised annual revenue growth forecast and weaker-than-expected fourth-quarter guidance have sent shockwaves through the Indian IT sector, causing major IT stocks and the Nifty IT index to tumble significantly.
Net investments into equity mutual fund schemes in India remained elevated at approximately 38,440 crore in April, despite a slight dip from March's high and a 3% month-on-month decline in Systematic Investment Plan (SIP) inflows.
'Retail portfolios were going nowhere even as headline indices moved higher, prompting investors to sell holdings and shift money to IPOs, attracted by listing-day gains.'
Despite trailing the benchmark Nifty 50, small and midcap (SMID) stocks appear pricey on a 12-month forward price-to-earnings (P/E) basis. The Nifty trades at roughly 21x forward earnings, compared with around 28x for both the Nifty Smallcap 100 and Nifty Midcap 100 indices.
Investors seeking higher returns at relatively higher risk should consider allocation to smallcap equity funds.
The BSE Smallcap index hit an over eight-month low of 47,627.96, falling 3 per cent in Tuesday's intraday trade amid selling pressure due to ongoing tariff-related concerns and rising geopolitical tensions.
Over 50 per cent, or 660 stocks, from the BSE 1000 index recorded negative returns during CY25.
The last time these two indexes recorded a negative performance on a calendar year basis was in CY19.
Domestic Institutional Investors (DIIs) have significantly increased their holdings in Nifty 500 companies, reaching a record 20.9 per cent by the end of March, while Foreign Portfolio Investors (FPIs) reduced their ownership to an all-time low of 17.1 per cent, according to Motilal Oswal Financial Services.
'Defence, capital goods, engineering, capital market-related stocks, autos, and cement sectors are my bullish bets for Samvat 2082.'
'The market is currently neither cheap enough to be exciting about nor expensive enough to worry about.'
It has mostly been a one-way street for smallcap stocks that have taken it on their chin thus far in February. The Nifty Smallcap 250 index has shed 3.2 per cent in the current month as compared to the 1.8 per cent decline in the Nifty Midcap 100 and the 0.5 per cent drop in the Nifty 50 index, data showed. Technically, the index has slipped below its 20-day moving average (DMA) placed at 14,800 levels on Monday, and is currently testing the 50-DMA, and is placed at 14,278 levels.
Indian stock market indices Sensex and Nifty closed nearly 1 per cent higher, marking their third consecutive day of gains, supported by a slight decrease in crude oil prices and positive global market trends.
Indian markets on Dalal Street rallied sharply as easing tensions in the US-Iran conflict and stable oil prices boosted sentiment. Track Nifty 50 and BSE Sensex performance and key global triggers.
Retail investors are moving away from a buy-and-hold approach and towards more informed short-term positioning, recent investment patterns show.
Net mutual fund inflows into active equity schemes in India plummeted by 40 per cent month-on-month in May, reaching a one-year low of 22,908 crore, primarily due to weaker lump-sum investments and increased redemptions amidst significant market volatility and global uncertainties.
Fixed deposits from nationalised banks delivered higher returns than equities, outperforming both inflation and stock market benchmarks.
Benchmark stock indices Sensex and Nifty closed on a flat note in a choppy session on Wednesday as gains in PSU banks and auto shares were offset by losses in IT stocks.
Small- and midcap stocks have delivered their biggest monthly rally in 12 years, but rising oil prices and global tensions could make the road ahead volatile.
Indian equities on Dalal Street saw volatility as global market trends and fresh tariff concerns linked to Donald Trump impacted investor sentiment. Track Sensex, Nifty50 movement and key market drivers for Feb 24, 2026.
The BSE Sensex and the Nifty 50 declined around 4.5 per cent each since the start of the West Asia conflict.
Worries about global politics and trade are pulling the Nifty 50 down. Experts say the market could drop further low.
'Though one cannot paint the entire microcap basket with the same brush, investors need to be careful now as to what they're buying.'
Investing in gold trumped most other asset classes in terms of compounded annualised returns over the long term, suggests a report by FundsIndia.
While selecting a smallcap scheme, go with one that has a good track record and a stable fund manager.
Market players attribute the rally in small and midcaps to flows from retail investors and domestic institutions.
