Smallcaps outperform larger peers by biggest margin since pandemic

Indian smallcap companies outpaced their larger peers this financial year by the widest margin since the Covid-induced FY21. Despite having come off over 8 per cent from its peak, the Nifty Smallcap 100 index finished FY24, with a gain of nearly 70 per cent, outperforming the benchmark Nifty by 41 percentage points.

In FY21, the smallcap index outperformed the blue-chip Nifty by almost 55 percentage points. However, in FY20 the Nifty Smallcap 100 index crashed 20 per cent, even as the Nifty remained unchanged. 

Similarly, in the preceding financial year (FY22), the smallcap index underperformed the Nifty by 14 percentage points. During FY25, most analysts believe the returns for smallcap universe could plateau and largecaps could once again outperform given the better risk-reward. 

However, if the correction in the smallcap space deepens, it could pose a buying opportunity for high-risk investors, analysts add. 

“Smallcap and midcap corrections have triggered concern as to the possibility of a deeper correction as in 2018. We think the current context is a lot more favourable than that of 2018. In aggregate a fall of 20-30 per cent is unlikely in our view. Nonetheless, we prefer largecaps in 2024, but see midcap opportunities in sell-off too,” said HSBC in a recent note. 

In terms of sectoral bets, investors betting on the realty and auto stocks were rewarded handsomely. On the other hand, stocks in the financials, FMCG and IT were the major laggards. Going ahead, experts feel underperforming sectors like financials could do well.