India's mutual funds turned aggressive buyers of small-cap stocks in March, making strategic purchases when retail investors were fleeing. When the Nifty Smallcap 250 index cratered 10% in March, fund managers across the country's asset management industry quietly turned net buyers in 505 smallcap stocks. According to The Economic Times, this strategic bet has paid off handsomely as the index has surged 13% in April so far. Urban Company was the single largest acquisition in value terms, with mutual funds collectively purchasing ₹862 crore worth of the stock in March, as estimated by Prime Database. The next nine names on the buy list included Manappuram Finance (₹431 crore), Amber Enterprises India (₹399 crore), Jain Resource Recycling (₹294 crore), RBL Bank (₹292 crore), Aster DM Healthcare (₹230 crore), LIC Housing Finance (₹220 crore), Ather Energy (₹211 crore), Sona BLW Precision Forgings (₹203 crore), and Dr. Lal PathLabs (₹202 crore).
The Nifty Smallcap 250 index has gained over 13% in April until the 16th, significantly outperforming the benchmark Nifty 50's 8% rise during the same period. According to reports from Mint, this strong performance reflects improving market sentiment amid favorable conditions. On Friday, 17 April, the Nifty Smallcap 250 index rose by more than 1% during the session, while the Nifty 50 managed only a half-percent gain. The small-cap segment has been witnessing strong momentum as market sentiment improves, supported by falling crude oil prices from multi-year highs and signs of easing tensions in West Asia. Recent market data shows Sensex climbing 236.33 points (+0.30%) to 78,225.01 and Nifty up 63.40 points (0.26%) to 24,260.15 by mid-day trading on April 17.
Several small-cap stocks have demonstrated exceptional performance this month, with Ola Electric and Gallantt Ispat surging up to 70% in April. As reported by Mint, more than 230 stocks in the Nifty 250 index are in the green for April so far, with as many as 175 stocks rising more than 10%. This broad-based rally across the small-cap segment indicates strong investor confidence and selective buying patterns among market participants. Recent trading data shows top gainers of Nifty 50 including ITC (+2.01%), NTPC (+1.33%), Trent (+1.06%), and Tech Mahindra (+0.73%). Waaree Renewable Technologies stock traded 9% higher at ₹1,159.65, hitting a high of ₹1,168, following strong Q4 earnings with over 66% rise in consolidated net profit to ₹155.72 crore.
Market experts are expressing measured optimism about the small-cap rally while maintaining caution about current valuations. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that while there are no fundamental issues with small-caps, President Trump's track record of inconsistency should guide investor decisions. According to Mint, Vijayakumar emphasized that the fear of foreign institutional investors turning sellers on rallies is weighing on large caps, making the broader market potentially better positioned in the near term. Gaurav Udani from ThinCredBlu Securities expects the Nifty to open flat to slightly negative around 24,170, indicating a muted start after facing resistance in the previous session. He recommends avoiding aggressive buying at current levels and waiting for confirmation of a sustained move above 24,400.
Experts highlight that the recent rally has stretched near-term valuations significantly. Uttam Kumar Srimal, Senior Research Analyst at Axis Securities, pointed out that small-cap valuations are near historical averages or a little higher, indicating that a significant portion of future growth is already priced in. As reported by Mint, Srimal warned that macroeconomic pressures, particularly rising crude oil prices, pose meaningful risks for small-cap companies, which often have limited pricing power and higher operating leverage. The valuations at nearly 31 times remain slightly above the long-term average of 28 times despite recent corrections. Recent market developments show crude oil futures trading lower with Brent at $98.17, down 1.23% following President Trump's optimism about securing a permanent ceasefire with Iran.
Despite valuation concerns, experts suggest a selective approach to small-cap investing. Arpit Jain from Arihant Capital Markets believes that while there is no harm in having exposure to small- and mid-caps, fresh buying at current levels should be measured and staggered rather than aggressive. According to Mint, Jain expects several companies to deliver decent earnings growth, with FY27 likely to be a better year for many businesses as operating conditions improve. Tushar Badjate from Badjate Stock & Shares highlighted that India's 5-year earnings growth at nearly 16.2% remains the strongest among emerging markets, with consensus expectations of 12-16% earnings growth for FY27. Market experts recommend waiting for confirmation of a sustained move above key resistance levels before taking fresh positions in the small-cap segment.
