Party continues in mid & smallcaps; experts still see growth pockets ahead

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₹1,018 crore in March, while smallcap schemes registered an outflow of ₹94 crore, compared with inflows in January, February, April and May, according to Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research. But inflows into midcap schemes in May exceeded the level in January, which was previously the highest until then, Pagaria said. “This clearly reflects the underlying confidence among investors and (small and midcap) and flexicap will remain the favourite categories." Also read | A blip, not a trend: Smallcaps remain the flavour despite recent shift The Nifty Smallcap 250 index has surged by 20% so far in 2024, while the Midcap 100 has gained 19%.

Both indices hit a record high on Tuesday. The Nifty Midcap 100 is currently trading at a price-to-earnings multiple of 41.59, up from its five-year average of 35.36. The Nifty Smallcap 250 has a P/E ratio of 33.04 compared to its five-year average of 21.14, Bloomberg data show.

While valuations look stretched, growth may be supported by earnings, apart from sustained inflows. For financial year 2025-26, Nifty Midcap and Smallcap index earnings are expected to be in the range of 22-25%. Any downgrade in earnings might prompt a sharp correction in these indices.

The moot question, though, is whether this rally will continue. Valuations and the looming possibility of a correction are valid concerns. Investors should be prepared for short-term volatility and potential corrections.

Yet experts say there is still room for an upside, and they anticipate growth opportunities in some sectors in the broader market. Taher Badshah, CIO at Invesco Mutual Fund, said there are promising opportunities despite the current market fervour. He said some sectors will hold a