Mid- and small-cap stocks have been outperforming larger peers, although returns have moderated a bit recently. Over the past year, benchmark indices BSE Sensex and Nifty50 have risen approximately 6% and 7%, as per data from brokerage Prabhudas Lilladher.
During the same period, the BSE Midcap and BSE Smallcap indices surged by 32% and 37%, showcasing more robust growth. However, in the last quarter, the margin of growth has lessened, with the BSE Midcap and BSE Smallcap indices climbing about 8% and 9%, in contrast to the more modest gains of 2% and 3% in the Sensex and Nifty50.
A key concern here is that most of the mid- and small-cap stocks may have run ahead of their fundamentals. Therefore, sustaining the outperformance would hinge on earnings improvement, going ahead.
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