Mid-, Small-Cap stocks gain for 3rd straight day; will the rally sustain?

MidCap and SmallCap shares were ruling higher on the bourses on Thursday, March 6, 2025, continuing their northward move for the third consecutive session. The Nifty MidCap150 index rallied 1.3 per cent to an intra-day high of 18,477, while the Nifty SmallCap250 index climbed 1.8 per cent to an intra-day high of 14,543 levels on Thursday.

 

In the process, the Nifty MidCap index had gained 6.3 per cent from its March 3 low of 17,380, whereas the Nifty SmallCap250 index soared 8.3 per cent from Monday's low.

 

The gains in the MidCap space was led by Hitachi Energy - the stock has soared over 22 per cent in the last three days. NLC India, Hindustan Petroleum Corporation (HPCL) and Bharat Dynamics were the other major movers - up over 17 per cent, from their respective lows on March 3. KPIT Technologies, CG Power and Industrial Solutions, and Housing & Urban Development Corporation (Hudco), GlaxoSmithKline Pharmaceuticals, Gujarat Fluorochemicals, Carborundum Universal, The Fertilisers and Chemicals Travancore and Biocon gained in the range of 13 - 15 per cent.

 

 

In the case of SmallCap stocks - Deepak Fertilisers, PTC Industries, India Cements, Concord Bioctech, Alok Industries, Akums Drugs and Vijaya Diagnostics were the top gainers - logging up to 16 per cent gains in the last three days.

 

Market analysts attribute this rally to the recent correction in the mid- and small-cap stocks, citing that it created attractive opportunities for long-term investors. Despite these gains, the Nifty MidCap150 index remains approximately 18 per cent below its 52-week high of 22,515; while the Nifty SmallCap250 index is still about 22 per cent lower than its 52-week high of 18.688. 

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The recent decline in the markets, according to Narendra Solanki, head of fundamental research - investment services at Anand Rathi Shares and Stock Brokers, has created attractive opportunities for long-term investors. This pullback, Solanki believes, has allowed investors to selectively accumulate stocks at relatively lower valuations, leading to stock-specific buying across various sectors.

 

Echoing similar views, Ravi Singh, SVP of Retail Research at Religare Broking, also attributed this rally to the correction in the stocks. The correction, according to Singh, has made these stocks more attractive, leading retail investors or funds, not entirely, but around 20-30 per cent, to invest at these levels. So, value-buying stocks are going up. "After the correction, stocks with solid fundamentals, which were impacted by market volatility, have become more attractive," said Singh.

 

Will the rally sustain?  

 

Market analysts remain skeptical about the sustainability of the ongoing rally in mid- and small-cap shares. The sustainability of any potential market rebound, however, remains contingent on multiple factors, including global economic volatility, geopolitical tensions such as the ongoing Ukraine conflict, and potential policy shifts like the impact of Trump-era tariffs, said Solanki. Given these uncertainties, Solanki anticipates that markets will stabilise and enter a consolidation phase in the near term before establishing a clearer directional trend.

 

Singh also believes that this rally doesn't seem sustainable, given that fresh investors, retailers, or fund houses with 20 - 30 per cent of their fund are selectively buying. According to him, sectors like defence, mining, banks, FMCG, and railways look more attractive at present.