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Smaller stocks lagged behind their bigger blue-chip peer Sensex this year as elevated valuations triggered profit-booking after a strong rally in the last two years. Analysts attributed the underperformance of smallcap and midcap indices in 2025 due to market normalisation after their exceptional outperformance in 2023 and 2024. Depreciation of the rupee, concerns over the USIndia trade negotiations and persistent foreign fund outflows also led to a sharp risk-off reaction in the broader market, experts noted. On the road ahead, market experts are of the view that the outlook for smallcap and midcap indices remains cautiously optimistic. They said that as valuations cool and earnings visibility improves, selective opportunities should emerge, supported by India's steady GDP growth and strong domestic liquidity. Till December 24 this year, the BSE midcap gauge went up marginally by 360.25 points or 0.77 per cent. The BSE smallcap index, however, declined by 3,686.98 points or 6.68 p