The last time these two indexes recorded a negative performance on a calendar year basis was in CY19.
It has been a disastrous start for the mid-and smallcap stocks to 2025 with both the indexes underperforming the benchmark Nifty50 this far in calendar year 2025 (CY25). And if analysts are to be believed, there is no respite in sight yet.
While the Nifty Midcap 150 index has lost around 7 per cent thus far in CY25, the Nifty Smallcap 250 index has slipped around 9 per cent.
The Nifty 50 index, meanwhile, has slipped nearly 2 per cent during this period, data shows. At an aggregate level, 280 stocks out of the 400 that comprise the index (70 per cent) are trading below their respective 200-day moving average (DMA).
"There are two trends in the market that deserve attention. One, the institutional activity is showing a consistent trend -- sustained selling by FIIs and sustained buying by DIIs," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.
"Two, there is a trend towards quality -- large-caps are resilient while the broader market is weakening. These two trends are likely to continue in the near-term. Since the dollar index and US bond yields continue to remain high, FIIs are unlikely to turn buyers any time soon," Vijaykumar added.
Years of outperformance
The fall in the mid-and smallcap stocks has come after years of outperformance. The last time these two indexes recorded a negative performance on a calendar year basis was in CY19, when the Nifty Midcap 100 and the Nifty Smallcap 100 lost 4 per cent and 10 per cent respectively, suggests a note from BNP Paribas Securities.
The stellar rise of mid, small-caps since then, BNP Paribas notes, made valuations expensive as compared to their large-cap peers. As a result, they see better value in large-cap stocks and prefer these over mid- and small-caps in CY25.
"The strong performance of mid-and small-caps over Nifty 50 in CY24 was largely driven by strong DII inflows. The strong performance (of mid- and small caps) since January 2023 has increased their valuation premiums over Nifty 50," said Kunal Vora, head of India equity research at BNP Paribas Securities.
"Nifty Midcap next twelve months (NTM) price-to-earnings (P/E) is trading at around 58 per cent premium to Nifty 50 NTM P/E," Vora added.
Thus far in CY25, meanwhile, of the 150 stocks that comprise the Nifty Midcap 150 index, 109 stocks (72 per cent) are trading below their respective 200-day moving average (DMA).
On the other hand, 171 stocks that comprise the Nifty Smallcap 250 index (68 per cent) are trading below their respective 200-DMA, data shows.
Among individual stocks, Kalyan Jewellers India, Kaynes Technology, Aditya Birla Real Estate, KEC International, Oracle Financial Services Software, Oberoi Realty and PB Fintech are among the worst hit in CY25, falling up to 37 per cent during this period, ACE Equity data shows.
Vodafone Idea, SBI Cards and Payment Services, Navin Fluorine International, SRF, Shyam Metalics and Energy, Redington and Sundaram Finance are some of the stocks that bucked the trend in CY25 and moved up to 20 per cent.
"Many quality small-and midcap stocks have corrected significantly and the pain may continue till mid-March considering adverse global cues, rising oil prices, recent value erosion in many individual stocks and the consequent liquidity crunch," said G Chokkalingam, founder and head of research at Equinomics Research.
"Those who can take risk of up to 5 per cent to 7 per cent further fall at the index level may continue to hold on to quality small-and mid-cap stocks, and even add more such quality stocks on every decline till end of March 2025."
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