As the Nifty shines, smallcaps stumble—inside India’s two-speed market

Subscribe to enjoy similar stories. MUMBAI: With the benchmark Nifty 50 trading just 2% below its 52-week high, India’s equity market appears buoyant. But beneath the surface, a very different story is playing out.

The Nifty Smallcap 250 remains nearly 12% off its peak, reflecting a sharp divergence that suggests investors are growing cautious about riskier corners of the market. Market breadth underscores the unease. Only 10 stocks in the Nifty Smallcap 250 are within 0.5% to 9.9% of their 52-week highs.

In contrast, 131 stocks are down between 10% and 30%, while another 90 have fallen even further—by 31% to as much as 69%, according to Bloomberg data. The imbalance raises a key question: as largecaps power ahead, has investor risk appetite structurally shifted away from smallcaps? The prevailing view among market participants is that it has not. Instead, they argue the underperformance reflects cyclical caution driven by liquidity pressures, foreign selling, and global macro uncertainty—rather than a permanent change in investor preference.

“Though FII ownership in smallcaps at around 9% is lower than in largecaps at around 20% and average ownership across market caps of around 15.5%, the sell-down by FIIs hurt smallcaps more due to lower liquidity (volume) vs largecaps," pointed out Vinay Jaising, chief investment officer and head of Equity Advisory at ASK Private Wealth. On a net basis, foreign institutional investors have sold about $2 billion worth of equities in December alone and nearly $18 billion in calendar year 2025 so far, Jaising said, contributing to the relative underperformance of smallcap stocks. Smallcaps, he added, are inherently more sensitive to global macro shocks—whether a 6-7% rise in the dollar