Smaller stocks have continued to give higher returns to equity investors so far this fiscal, significantly outperforming bigger peers on indices.
The BSE smallcap index has zoomed 7,333.47 points or 35.51 per cent, while midcap index has jumped 5,096.41 points or 25.25 per cent so far this fiscal.
In comparison, the 30-share BSE benchmark Sensex has gained 9,797.78 points or 19.78 per cent.
"We are in a structural bull market where midcap and smallcap stocks tend to outperform and we are seeing the same phenomenon is playing out.
"The other reason for the outperformance of the broader market is strong participation by retail investors and thanks to technology that is helping the penetration of the stock market in India," said Parth Nyati, Founder, Tradingo.
"If we look at the first half of FY'22 then we are seeing continuous selling by FIIs that is another reason for the underperformance of large-cap stocks, however the overall performance of Indian equity markets is much better than global peers," he noted.
The BSE midcap index reached its record high of 27,246.34 on October 19 and the smallcap hit its all-time peak of 30,416.82 the same day.
The BSE Sensex rallied to its all-time high of 62,245.43 on October 19.
Nyati said a massive outperformance by the Indian market in FY22 is being seen so far on the back of a strong recovery in the economy and demand, supportive government policies, and most importantly strong retail inflows through both direct equity and mutual funds.
"We are in a strong bull run and the Indian market will continue to outperform, however market had moved ahead of expectations in the last few months," he said.
Domestic equity markets had a record-breaking rally recently where it reached many new lifetime highs.
Analysts said the rally in the equity market were driven by many factors including global liquidity, containment of COVID-19 cases and significant pickup in vaccination.
The BSE benchmark index had a terrific journey so far this fiscal, where it rallied from 53,000-mark to over 62,000 level during this time.
On the recent correction in the equity market, Nyati added that we are seeing a first meaningful correction after a long time and the sell-off can be attributed to relentless selling by FIIs.
On the outlook for small-cap and mid-cap he added that we are seeing the first meaningful correction and that may see a further extension to 10-15 per cent while that will be a good buying opportunity.
"It will be interesting to see the behaviour of new investors who debuted the equity market in the last one and a half years because they haven't seen any meaningful correction yet.
"We could see more volatility in midcap and smallcap index in the next 1-2 months that may take out weak hands while this correction will be a good buying opportunity to enter into quality names because we are going to see a strong bounce-back again where Sensex may move above 65,000 mark by the end of FY22," he added.
Last fiscal, the BSE smallcap index zoomed 11,040.41 points or 114.89 per cent, while the mid-cap jumped 9,611.38 points or 90.93 per cent.
In comparison, the BSE benchmark clocked 20,040.66 points or 68 per cent gain last fiscal.
According to market analysts, smaller stocks are generally bought by local investors while overseas investors focus on bluechips or large firms.
The midcap index tracks companies with a market value that is, on an average, one-fifth of bluechips or large firms.
Small-cap firms are almost a tenth of that.
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