(May 6): India’s small-cap stocks are staging a sharp comeback, underscoring a revival in risk appetite among investors after months of steep losses.
The Nifty Smallcap 250 Index advanced 1% in early trading on Wednesday, set to extend its rebound from March lows to 20%. That puts it on the cusp of a so-called bull market — the first among the country’s broader market segments to reach that milestone.
The surge signals renewed interest from retail investors, who are key drivers of the small-cap space and often act as a barometer of risk sentiment. The rebound follows a bruising correction from peaks seen in 2025, when valuations came under pressure amid worries over the pace of earnings improvement in India.
Escalating conflict in the Middle East this year further hit the sentiment. Small-cap stocks faced the biggest brunt of the selloff, with the 250-member gauge falling 10% in March. A recovery in the broader market last month pushed the index 17% higher in its best-ever rally.
“Growth in small- and mid-cap companies is structurally stronger than in large caps,” said Alok Agarwal, a fund manager with Alchemy Capital Management. Investors are looking to build positions in this segment but selectively, said Agarwal, who prefers mining, industrials, power and capital markets sectors.
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Brokerages have begun lifting earnings estimates for smaller companies, citing stronger growth visibility relative to larger peers. The rally is also being supported by a more favourable domestic backdrop after Indian Prime Minister Narendra Modi’s party delivered a strong showing in recent state elections, reinforcing expectations that the federal government will stay the course on reforms.
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