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Below the Quote on Outlook on Mid & Small Cap Index by Mythili Balakrishnan, Co-fund Manager, Alchemy Capital Management

"We believe that the rally in small and mid-cap companies is primarily driven by robust earnings growth. Over the past five years, NIFTY 50 companies have achieved a 17% EPS CAGR, whereas Nifty Midcap 150 companies have seen a CAGR of over 20% and Nifty Smallcap 250 have seen a CAGR of more than 25%. Moving forward, analysts forecast that the EPS for Nifty Midcap 150 and Nifty Smallcap 250 indices will grow at over 20% for FY24-26, in contrast to around 13% for the NIFTY 50. (Source: Bloomberg, Ambit Capital Research). This growth differential is contributing to the premium valuations and the ongoing rally in these stocks. Additionally, the small and mid-cap indices have greater exposure to high-growth sectors such as defence, EMS, and real estate, which are attracting significant investor interest. However, we recognize that increased liquidity from retail flows is also playing a role in fuelling the rally in small and mid-cap stocks.

In our opinion, investors' fund allocations and investment strategies should be aligned with their long-term goals and risk appetite, having taken into consideration the advice of their financial advisors. They should avoid being influenced by short-term market fluctuations. While small and mid caps have delivered strong returns over the past year and tend to outperform large caps in the long term, going forward, investors should have reasonable expectations of returns."

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