The has largely held its ground in May so far, building on the over 18% rally seen last month, and is on the cusp of entering the bull market. Any stock or index is said to be in a bull market after it runs up 20% or more in a short span.
What’s remarkable is the timing of this rise. The Middle East war rages on, driving crude oil prices higher and the . The benchmark indices have borne the brunt of selling, but investor interest in small-cap stocks remains strong.
The Amfi numbers for the last few months clearly establish this trend. Last month, , while mid-cap funds attracted ₹6,886 crore — record highs for both categories. On the flip side, large-cap funds, by contrast, lost some shine, with inflows dropping 15.3%.
What has powered small-cap stocks’ rally?
The Nifty Smallcap 100 jumped 18.4% in April, outpacing gains of 7.5% in the Nifty 50 index.
“We have seen decent buying interest in small-cap stocks despite the ongoing Middle East crisis, which is quite remarkable. However, one should not forget that these stocks remained under tremendous selling pressure for nearly 15 to 18 months since 2024,” said Shrikant Chouhan, Head Equity Research, Kotak Securities.
Most corrected by more than 60% to 65% during this period. This, according to analysts, has rendered valuations attractive compared to the relative underperformance seen in large-cap companies amid geopolitical uncertainties.
Another important factor has been continued confidence in the medium-term growth story of India despite global uncertainties, said Dr Ravi Singh, Chief Research Officer from Master Capital Services.
“While the has sparked worries on crude oil prices, inflation and supply chain disruptions, markets now believe the direct impact on India company’s earnings may remain manageable, unless there is a major escalation in the conflict.”
Motial Oswal, in its preview note, had projected a decent 18% growth in PAT for its small-cap universe, aided by a softer base but lower than 27% jump seen in Q3 FY26. However, it’s faster than the 7% increase seen for the large-cap segment. Topline and EBITDA figures are also expected to grow in double digits.
At the same time, small-cap stocks witnessed relatively lower selling pressure from FIIs, which helped them behave defensively in the current environment, according to Chouhan. FIIs have sold a record amount of domestic stocks in 2026. However, given higher allocation of large-cap stocks in their portfolios, the broader market names have been relatively insulated from this selling pressure.
Is rally in small-cap stocks sustainable?
Make no mistake, despite this surge, the index must rally remains significantly below its 52-week high level of 19,224.95, putting it 7% from away from touching that peak.
The sustainability of the rally will depend on earnings delivery and valuation, said Dr Singh.
“The long-term outlook for fundamentally strong small-caps is still positive, but the pace of the recent rally shows that volatility could increase in the near term, especially if global risk-off sentiment becomes worse due to geopolitics or higher bond yields,” he cautioned.
Analysts believe that the current surge is a selective accumulation by smart investors who are looking at long-term growth opportunities. Going ahead, select companies can continue to outperform the broader market depending on their business dynamics and sectoral positioning, said Chouhan.
Stocks catering to sunrise sectors may continue to perform well across market cycles, irrespective of near-term market trends, according to him, as he advised investors to adopt an extremely selective approach.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.