India's mid and smallcaps still have room for growth; here's why

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semiconductors, IT hardware, chemicals, renewables, ethanol, and more. While each mid and small-cap stock's trajectory is distinct, driven by its unique strengths and circumstances, the art of selecting the right stock is of paramount importance. If your stock is fundamentally solid with a narrative business outlook, you don’t need to panic.

Nonetheless, it's important to recognize that the stock market tends to experience short-term overbought and oversold conditions to the ebb of capital flow. In FY24, there has been a notable influx of domestic investors, including both DIIs and retail investors. For example, inflow only from a key segment like SIPs increased by 21% on a YoY basis.

The size of monthly SIP is at Rs. 15,814cr, all-time high in August 2023. The Nifty Midcap 100 and Nifty Smallcap 100 indexes have provided a return of 28% and 29% in CY23 till date, compared to 11% by the Nifty50.

Nevertheless, it would be an extreme perspective to assume that this represents the pinnacle performance of the category and that all stocks within this basket have lost their investment appeal solely due to the robust performance of the past eight and half months. Because firstly, the performance of Mid & small caps was muted in 2022 at +4% and -14%, respectively, as pent-up demand moderated, and rise in input costs led to profit booking. The quantum of selling was completed by March 2023, and the ongoing inflow is expected to continue due to positive economy view.