When The Giants Slept, Smallcaps Soared: How Lesser-Known Stocks Delivered Big

Last Updated:June 02, 2025, 17:36 IST

According to HSBC Mutual Fund, smallcap firms in India’s developing economy can deliver substantial long-term gains thanks to their rapid growth potential

In a surprising turn of events, smallcap stocks have been outperforming the market, even as Sensex and Nifty experience pressure. This phenomenon has caught many investors off guard. While Sensex and Nifty, which are indexes of large companies, fluctuate with the movements of their constituent shares, the BSE Smallcap Index has been showing remarkable resilience and growth.

Over the last three months, while Nifty has risen by 12 percent, the BSE Smallcap Index has surged by an impressive 21 percent. This has resulted in substantial returns for those who invested in smallcap stocks.

According to a report by Economics Times, several companies have delivered extraordinary returns. For instance, NACL Industries soared by 192 percent, and Garden Reach Shipbuilders by 147 percent. Other companies, such as Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals, have also seen their stocks either double or come close to doubling.

The surge in smallcap stocks can be attributed to several factors, including the improvement in India’s economic conditions, a fall in interest rates, and an influx of money from both foreign and domestic investors into the stock market. Additionally, the performance in sectors such as manufacturing, infrastructure, and financial services has been notably strong.

According to the equity head of HSBC Mutual Fund, smallcap companies in a developing economy like India can offer significant long-term profits due to their rapid growth. However, experts caution that despite the current uptrend, the valuation of these smallcaps is no longer cheap. Investors should be wary of future profit expectations, as failure to meet these could result in losses.

What If You Don’t Want To Take Risk?

For those looking to avoid high risk, experts recommend investing in flexicap funds. If one’s risk tolerance is moderate, multicap funds are advisable. For those willing to wait for 5 to 10 years and bear higher risk, midcap and smallcap funds could be the best options.

In the March quarter, some sectors delivered better-than-expected results. FMCG companies, for example, maintained profitability by raising prices despite weak demand, while stable raw material prices helped control costs.

However, seasoned market participants believe that the era of easy money may be over. Success in the market will now hinge on wise investments, the selection of the right companies, and avoiding decisions driven by emotions.

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