Small-Caps Steal the Spotlight with a Stunning 7:1 Advance-Decline Ratio, While Mid-Caps Struggle to Keep Up
On November 19, small-cap stocks delivered a spectacular performance, outshining their mid-cap peers in a market rally. The BSE Small-Cap index posted an impressive 7:1 advance-decline ratio, with 808 of the 946 stocks ending in the green. In contrast, mid-cap stocks managed a more modest 5:1 ratio. While both indices gained 1.8%—their strongest rise since November 11—the small-caps clearly took the lead.
Here’s a snapshot: eight small-cap stocks surged over 10%, including companies like Brightcom Group and Avantel, while 42 climbed 5-10%, and a whopping 758 rose between 1-5%. In comparison, only four mid-cap stocks saw gains above 5%, with names like Escorts Kubota among them, while the majority (84) managed gains between 1-5%. Meanwhile, the large-cap space, represented by the BSE 100, lagged behind with a subdued advance-decline ratio of 4:1.
A Rocky Few Months for Small- and Mid-Caps
Despite today’s rally, the broader picture for small- and mid-cap indices hasn’t been as rosy since late September. Both have tumbled significantly, with small-caps down 12% and mid-caps sliding 11%, compared to the Sensex and Nifty’s relatively smaller declines. The weakness reflects ongoing caution among investors, particularly after sharp corrections during global risk-off events.
Foreign institutional investors (FIIs) have mostly steered clear of large-caps, selling off ₹1.17 lakh crore worth of stocks from the NSE’s top 100 companies in October. However, FIIs have found some value in the underappreciated small- and mid-cap spaces, infusing ₹851 crore into the Nifty SmallCap 250 and ₹1,202 crore into the Nifty MidCap 250. The growing interest stems from expectations of higher growth potential in these segments, along with under-ownership by foreign players.
Expert Views: A Mixed Bag
While today’s rally was encouraging, experts are urging caution. ICICI Securities pointed out the inherent volatility in mid- and small-cap stocks due to their lower liquidity, making them particularly vulnerable during market downturns. JM Financial further highlighted a concerning trend: 66% of companies under its coverage reported cuts to their FY25 earnings estimates after Q2 results, with mid- and small-caps seeing the steepest reductions—many exceeding 10%.
For instance, companies like Shriram Finance in the mid-cap space and Suzlon Energy among small-caps have faced sharp downward revisions, raising questions about their near-term growth prospects. While retail investors are drawn to the potential for higher returns in small-caps, the risks can’t be ignored.
The Takeaway
Small-cap stocks may have stolen the show today, but the road ahead for both small- and mid-caps looks challenging. While the inflows from FIIs provide a silver lining, caution remains the name of the game. For now, retail investors seem happy to take the plunge, betting on long-term growth stories like small IT firms, specialty chemicals, or niche manufacturing companies that could emerge as winners in a future upcycle.
