Nifty SmallCap & MidCap indexes outperform Nifty50 index

The Nifty Midcap 100 and Nifty Smallcap 100 indices have been consistently outperforming the benchmark Nifty50 since April 2023.

Both indices on September 6, 2023, hit their record highs, majorly due to the massive retail interest in SME IPOs and a general bullish momentum in the market. The Nifty Midcap 100 index is up by 30% year-to-date, while the Nifty Smallcap 100 index is up by 32%. The Nifty 50 benchmark, on the other hand, is up by 9% so far this year.

The Nifty Smallcap 100 index has also hit an all-time high four times in the last two months.

The Nifty Smallcap 100 and Nifty Midcap 100 are stock market indices that track the performance of 100 small-cap and mid-cap companies listed on the National Stock Exchange (NSE) of India, based on market capitalization.

Nifty Midcap and Smallcap vs Nifty50 index

Both indexes as shown in the figure below have consistently outperformed their blue-chip counterparts. Its essentially a valuation game. Large Cap stock returns have somewhat plateaued, forcing retail investors to venture out into untested waters in the midcap/small cap space in lure for higher returns.

Why did Nifty Midcap and Smallcap reach an all-time high?

There are a few reasons for this outperformance. First, midcap and smallcap companies are generally more growth-oriented than largecap companies. This means that they are more likely to benefit from strong economic growth and rising corporate profits. Second, midcap and smallcap companies are often more volatile than largecap companies. This means that they can offer the potential for higher returns, but also the potential for higher losses.

Thus, the midcap and smallcap stock rally can be attributed to robust earnings growth, better performance, a rise in foreign fund inflows, and a strong macroeconomic scenario.

It is important to note that the outperformance of midcap and smallcap stocks is not guaranteed to continue. The market is cyclical, and there will be times when large-cap stocks outperform. However, for investors who are looking for growth potential, midcap and smallcap stocks can be a good option. 

Nifty Midcap and Smallcap at all-time highs: Economic Outlook Supports

The strong economic outlook in India is boosting investor confidence and driving domestic liquidity looking for investment opportunities in the market. Additionally, Portfolio Management Services (PMS), investments from High Net Worth Individuals (HNI), and the formation of multiple fintech firms that are spearheading investments and financial literacy across the country are reasons for providing the required confidence for first time investors. 

Nifty Midcap and Smallcap at all-time highs: Top Key Players in the Indices