Smallcap stocks mark strong comeback after heavy losses, is it revival or bull entice?

After 9 grueling periods that worn out months of features for retail traders, smallcap stocks are making a strong return. The Nifty Smallcap 250 index, which stays in bear market territory and is down 22% from its peak, rose 2% on Wednesday. Stocks like Aegis Logistics, GRSE, Netweb Tech, and Minda Corp noticed spectacular double-digit features.
However the query stays: Is this the start of a real revival, or only a non permanent bull entice earlier than one other downturn?
If the current sell-off is a correction in a bigger bull market, analysts consider the worst could also be behind us. But if this marks the beginning of a deeper bear market, historical past suggests the ache may persist for much longer. Investor Ajay Bagga warned, “We have seen much shallower bear markets, and in about 12 months, most of the damage is done. If we are in that phase, there could be another 5% to 10% correction in the leading indices over the next seven months.”
The Q3 earnings season proved to be harder than anticipated for smallcap corporations. According to JM Financial, 50% of smallcap corporations missed earnings expectations, in comparison with 34% for midcaps and 28% for largecaps.
Nuvama analysts identified that small and midcap (SMID) earnings, which had been outperforming largecaps for many of FY24, have now began underperforming, marking the second consecutive quarter of underperformance. “This is largely due to the domestic slowdown, which affects SMIDs more than largecaps. If you exclude BFSI, SMID profit growth has fallen sharply and is now contracting on a YoY basis for the second quarter in a row,” Nuvama defined.
Foreign institutional traders (FIIs) are a key issue on this battle. With a large Rs 1 lakh crore in fairness outflows this 12 months, mixed with a weakening rupee and rising bond yields, smallcap stocks are struggling to get better from their promoting spree.
“High-frequency indicators might start hinting at a turnaround soon,” mentioned V Okay Vijayakumar of Geojit Financial Services.
Despite the challenges, some analysts see a longer-term alternative. Citi Research forecasts the Nifty to achieve 26,000 by December 2025, whereas Morgan Stanley believes India is on observe to renew its emerging-market outperformance, because of macro stability and rising consumption.
Vikas Khemani of Carnelian Advisors emphasised that traders ought to give attention to the corporate, enterprise mannequin, and administration fairly than market dimension. “If you like a particular company with strong management that can deliver over time, this is a great time to buy, regardless of whether it’s a small or large company,” he mentioned.
The subsequent few weeks will decide whether or not smallcaps are on the verge of a comeback or heading towards one other sell-off.