India’s smallcap index has fully recovered from the US-Israel-Iran conflict, surging past pre-war levels. In contrast, the benchmark Nifty remains below its late-February peak, raising questions about the potential for a bluechip comeback or the sustainability of the smallcap rally. The divergence indicates a structural shift in Indian equity ownership. Since January 2020, smallcaps have multiplied 2.9 times and midcaps 3.3 times, compared to just 2.0 times for Nifty 50.
Chandraprakash Padiyar, senior fund manager at Tata Asset Management, noted that valuations are more reasonable, making the risk-reward favorable. He announced the reopening of lumpsum investments in the Tata Small Cap Fund after closing it in June 2023. Vinay Paharia, CIO at PGIM India Mutual Fund, expressed a bullish view on smallcaps, stating that largecaps and smallcaps are trading close to their longer-term averages.
However, Vinod Karki at ICICI Securities cautioned that smallcaps did not correct as expected during the crisis. He argued that the Nifty offers better risk-adjusted returns. Dr. VK Vijayakumar from Geojit Investments predicted a potential comeback for largecaps but noted possible pressure from foreign portfolio investors. Axis Mutual Fund highlighted the need for selectivity in investment due to valuation dispersion in various sectors.
