Broader markets – Nifty Midcap 100 and Nifty Smallcap 100 indices underperformed the headline indices with a year-to-date return of over 4 per cent and 1.6 per cent, respectively. In contrast, the bluechip Nifty50 index gained nearly 8 per cent. 

G. Chokkalingam, Founder- Equinomics remarked that since 2020 March bottom small and mid caps have been outperforming Sensex and Nifty by big margins. Nearly 4.5 years of  continued outperformance ( a rare event in the history). Hence, significant profit booking took place in SMCs (small & mid cap) segment in H1CY2025.

Profit booking in this segment accelerates as from February 2025 overall market cap recovered 75 per cent of peak losses. This also gave strong case for profit booking in the segment. Also, even in absolute terms valuation comfort was lacking in a huge number of stocks from the pack after 4.5 years of continuous outperformance by SMC over the bluechip indices.

Meanwhile, Anubhav Sangal, Senior Research Analyst at Bonanza noted that the broader markets have massively underperformed the NIFTY50, with NIFTY MIDCAP 150 and NIFTY SMALLCAP 250 underperforming NIFTY 50 by 5 per cent  and around 8 per cent respectively.

He is of the view that the broader markets are either pricey or fairly valued with certain pockets of undervaluation hidden in difficult spots. Furthermore, specific pockets like the defence sector is already sitting at over-stretched valuations that seemingly put the sector on the edge of a slopy cliff. Current scenario looks cautious fundamentally as it remains to be seen how the cycles start picking up, especially the capex cycle that seems to be back around the corner.

Outlook for small and midcaps 

Chokkalingam is of the view that stocks in the SMC segment are likely to outperform in H2 CY2025 again as significant corrections in many SMC stocks made them quite attractive . Also a lot of unique growth stories, deep values, M&A Possibilities etc are available in the segment.