The small and midcap outperformance continues for the 5th staright session. The BSE Smallcap Index gained over 1% on Friday, May 16, and has risen more than 5% in the last 5 sessions. The trajectory of BSE Midcap Index is almost similar. While the Index clocked around 1% gains intra-day on Friday, the 5-day returns are around 4% for the key Midcap Index. Even the Nifty Midcap 100 Index has delivered over 7% returns in the last 1 week.
Overall market breadth was strong. On the sectoral front, all the key indices ended the week in the green with multiple indices closing with weekly gains in excess of 5%.
Shrikant Chouhan, Head – Equity Research, Kotak Securities, highlighted that “With a benign outlook for inflation, we expect rate cut of another 75-100 bps by the end of FY26. Low crude oil price, expected good monsoon, RBI rate cut, and lower inflation are some of the positive macro factors for the Indian economy. The increase in FII inflows demonstrates positive sentiment for India, possibly reflecting conviction among investors that India is a relatively better market in light of global growth challenges.”
Defence stocks shine
Some of the strongest gainers in the mid and smallcap space primarily comprise of the defence stocks. The Defence sector shares have been surging on the back of Prime Minister Narendra Modi’s push for made in India defence equipment. Counter slike Paras Defence, Cochin Shipyard, Garden Reach Shipbuilders are up as much as 10-120% intra-day. The 5-day return for some of these counters exceeds 35%.
Railway stocks see steady gains
The other key sector that is shining in the small and midcap space are the railway stocks. Be it RITES, RVNL, IRFC, Titatagarh or BEML, most counters clocked double-digit gains in intra-day trade, Overall the railways stocks closed with sharp gains. Most market analysts ascribed the gains to the overall outperformance seen in the small and midcap space.
What is powering the small and midcap rally
The small and midcap stocks have been buzzing for the better part of the week. One of the reasons for the outperformance have attributed to specific sector specific buzz like the defence sector. But that apart the fact that small and midcap funds saw significantly higher inflows in April also added to the market optimism.
That apart, a study by Elara Securities indicated that midcap earnings have fared better than large caps. Needless to mention that this also boosted investor confidence, especially after the sharp correction seen in March.
However that said, most seasoned market veterans have been advising measured investment in small and midcaps and highlighting that investors need to take well-informed, stock-specific bets in this space, as they do not rule out pockets of overvaluation still.