Mid-, small-cap indices outperform benchmarks by rising up to 5% in 4 sessions; what lies ahead

After a muted start, benchmark indices Nifty and Sensex rallied on November 27 led by energy, auto, metal and bank stocks.

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26 Aug, 2025 12:21

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Broader market indices have witnessed a sharp rally in the last four sessions, with the Nifty Smallcap 100 advancing nearly 5 percent as foreign institutional investors (FIIs) eased their selling pressure and turned marginal buyers.

The rise has outperformed the movement in benchmark indices, which have shown signs of consolidation.

The Nifty Smallcap 100 climbed 5 percent in four straight sessions till November 27, outperforming the headline Nifty 50, which gained 4.21 percent in the same period. In contrast, the Nifty Midcap 100 posted a 3.32 percent rise.

On November 27, the Nifty Smallcap 100 touched an intraday high of 18,474.35, up 1.14 percent, while the Nifty climbed over half a percent to reach an intraday high of 24,341.15.

Manish Chowdhury, Head of Research at StoxBox believes that markets seemingly are pricing in a much better earnings performance by small and mid-cap companies in H2FY25 compared to H1FY25.

"While we do see a sea-change in fundamentals, our sense is that the kind of correction witnessed in small-cap and mid-cap stocks from their tops has led to bargain hunting in these stocks," he said.

Despite the broader market strength, the Nifty closed marginally in the red on November 26, slipping 0.11 percent, marking a divergence from the Smallcap and Midcap indices, which remained in the green for three straight sessions.

Market experts attributed the rally in broader indices to easing concerns over relentless selling by FIIs. "A major market concern from relentless FII selling is receding since they have turned buyers, though marginally," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The change in FII stance is seen as a positive signal, especially for small and midcap stocks that are typically more sensitive to liquidity flows.

The broader market's performance comes as investors digest the implications of Donald Trump's victory in the US presidential election. While India's trade dynamics with the US might not face immediate disruptions, analysts warn of potential challenges ahead.

"India is unlikely to be impacted in the initial phase of Trump’s tariff plan but may come under Trump’s radar soon since India has a trade surplus with the US," Vijayakumar added.

"From a medium to long term perspective, we believe that select PSU stocks in defense, shipping, power and railways offer a favorable risk-reward opportunity after the recent sharp correction. As far as Nifty 50 benchmark is concerned, we believe that the broad underperformance by Reliance Industries along with the recent Adani saga has weighed on the performance," noted Chowdhury.

Anirudh Garg- Partner and Fund Manager at Invasset PMS noted that the past four sessions have seen a notable divergence in market performance, with broader indices like the Nifty Smallcap 100 rallying nearly 5%, significantly outpacing the Nifty Midcap 100 and the Nifty 50.

"This sharp uptick in small and mid-cap stocks comes as foreign institutional investors (FIIs) ease their selling pressure, signaling a welcome change in market sentiment. The rally highlights the market's tendency to seek opportunities in undervalued pockets. The corrections we witnessed in small- and mid-cap stocks earlier this year seem to have set the stage for bargain hunting, with investors now pricing in improved earnings for these companies in the latter half of FY25. However, the broader market’s resilience reflects a shift in focus toward liquidity-sensitive stocks and high-potential sectors like defense, railways, and power, which continue to offer attractive risk-reward opportunities," he added.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.