Smallcaps hit pause after a 4-year rally. Is the turnaround finally here?
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After a strong rally from FY20 to FY24, Indian small-cap stocks have largely moved sideways over the past 12 months. This slowdown has been driven by several factors: stretched valuations, tighter liquidity, macro pressures (higher interest rates and a weaker rupee), softer earnings growth, and unusually heavy supply from new IPOs. Investors are now asking for stronger earnings growth before committing more capital. The underperformance accelerated after the U.S. elections and Donald Trump’s return, which brought higher U.S. tariffs on India and tighter H-1B visa norms. The small- and mid-cap (SMID) segment has now seen a full year of time correction, which has made valuations far more reasonable. Many of the earlier headwinds are easing, and a potential turnaround looks close—although pinpointing the exact bottom is always hard. In our view, selective stock-picking within the small-cap space can still deliver strong long-term returns. Ov...