6,000-point Sensex rally overshadows market's real story: Smallcaps are staging a revolt
India's
stock market
is poised for a dramatic shift as the second half of 2025 beckons. With the
Sensex
already soaring 6,000 points in 6 months and sitting just 2,000 points shy of record highs, all eyes are turning to whether
smallcaps
can finally steal the spotlight from their largecap cousins
The benchmark Sensex has surged about 8% in the first half of 2025, showcasing remarkable largecap resilience that has propelled Indian equities toward potential new peaks. But beneath this headline-grabbing performance lies a tale of two markets: while bluechip giants have dominated, the
BSE Smallcap index
remains stubbornly down 1.7% year-to-date and midcaps have barely managed to stay flat.
Now, with momentum shifting dramatically in recent months, market veterans are asking the burning question: Could the second half belong to the smallcap universe?
The most aggressive bulls are already sketching out a path to historic highs.
Karthick Jonagadla
, Founder & CEO at
Quantace Research
, has set jaw-dropping December-end targets that would shatter all previous records.
"We peg December-end targets of
Nifty
26,500 and Sensex ~95,000, implying mid- to high-single-digit upside from current levels and new peaks well before calendar year-end," Jonagadla declared, backing his bold prediction with three powerful catalysts.
His confidence stems from the RBI's aggressive monetary easing. The RBI's front-loaded 50 bps cut in June takes the repo rate to 5.50% and signals a neutral stance, combined with record-breaking retail flows where SIP contributions hit another record Rs 26,688 crore in May and have stayed above Rs 20,000 crore for ten straight months.
Also Read |
Rs 1 lakh crore selloff tsunami threatens Nifty rally as promoters, strategic investors exit
The foreign money is flowing back too: "Foreign investors returned with about $5.5 billion of block-trade buying in May alone." FIIs have been net buyers in all the last 4 months.
The real story lies in the dramatic smallcap turnaround that's reshaping market dynamics. After months of brutal punishment, smaller companies have staged what can only be described as a spectacular comeback.
"Smallcaps have staged a strong comeback. The BSE Smallcap index rose more than 20 percent in the second quarter. Midcaps also recovered. Momentum is building in the broader market, driven by improving fundamentals and stronger flows,"
Krishna Appala
, Fund Manager at Capitalmind PMS said, highlighting the explosive reversal that caught many by surprise.
Jonagadla sees this as just the beginning: "Three forces should keep that tailwind alive in H2. Liquidity is turning supportive. Policy rates are falling just as earnings momentum broadens. Valuations have cooled."
The technical picture has improved dramatically: "After the Q1 sell-off, the Nifty Smallcap 250 now trades a little below its 5-year median PE; profit-taking in June shows froth has come out of the trade."
Most importantly, the earnings outlook remains robust: "Consensus still sees mid- and small-cap EPS growing in the high-teens for FY26."
Also Read |
Nifty breaks out of 31-day consolidation cage. Will stock market hit record high this week?
The Great Smallcap Debate
But not everyone is convinced the small-cap revival will sustain. Amit Jain, Co-Founder of Ashika Global Family Office Services, remains deeply cautious about the broader market surge.
"Despite the recent bounce, we remain cautious on the smallcap and midcap space heading into H2," Jain warned. "This rebound has been driven more by liquidity than fundamentals. Valuations in many pockets remain stretched, and earnings upgrades have not kept pace with price action."
His concerns run deeper than valuation: "Moreover, broader market participation is thinning, and concentration risk is high. The rally has largely bypassed companies with weak balance sheets or inconsistent cash flows, which still make up a large portion of the smallcap universe."
The warning is stark: "Unless earnings catch up meaningfully or we see strong policy tailwinds, the risk-reward for fresh entry into this segment looks limited."
Sector Sweet Spots for the Second Half
As markets gear up for the next phase, clear sector winners are emerging from the pack.
Financials are leading the charge. "Lower policy rates and relaxed provisioning norms boost credit growth; PFC and REC leapt ~4% when the RBI's new rules landed, and PSU-bank indices hit six-month highs," Jonagadla noted.
Appala concurs: "Lower interest rates are helping banks and NBFCs. Credit growth remains strong, and asset quality is stable."
Capital goods and infrastructure companies are riding a government spending wave. "Order books are overflowing—L&T reported a record ₹1 trillion intake in Q4 FY25—underpinned by ongoing central and state capex," Jonagadla said.
The consumption revival is also gaining steam. "Rural demand is improving, and urban consumption is steady. FMCG, two-wheelers, and discretionary segments are showing healthy trends," Appala explained, pointing to improving "sales of two-wheelers, tractors, and FMCG products."
However, selectivity will be key. "Export-oriented pharma and chemicals could lag amid U.S. tariff noise, and defensives look fully valued," Jonagadla cautioned.
The Second Half Playbook
Despite geopolitical tensions that continue to inject volatility into global markets, Indian benchmarks remain "relatively resilient," according to Jain, who sees potential for "further upside toward 26,500–27,000 in the coming months."
For small and midcap investors specifically, Jonagadla offers measured optimism: "H2 should show better absolute returns than H1, yet dispersion will stay wide, rewarding bottom-up quality screens."
Appala's roadmap is clear: "There are good reasons to believe so. Inflation has cooled, the RBI has started cutting rates, and rural demand is recovering. These tailwinds support a more positive setup for smaller companies. However, valuations in this space remain expensive. Stock selection will be important."
His final advice captures the moment perfectly: "The first half of the year was largely driven by large-cap resilience. But the broader market is now gaining traction. With improving macros, better earnings, and steady inflows, the second half could offer opportunities — especially in sectors linked to India's growth story."
The stage is set for a potential small-cap boom—but as always in markets, the devil will be in the details.
(
Disclaimer
: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Indian Express
4 minutes ago
- Indian Express
As hedging desk comes up for cotton and maize, soyabean farmers in Maharashtra ask: ‘Why keep us away from futures market?'
Last week, as Vilas Ufade and other members of Vikas Agro, a farmer producer company (FPC), watched Maharashtra Chief Minister Devendra Fadnavis unveil the first hedging desk for cotton and maize in Pune, one question lingered in their minds: 'Why has soyabean been banned from the futures markets for four long years?' Located in the heart of Maharashtra's soyabean belt in Latur, Vikas Agro was one of the more than 700 FPCs which dealt with the commodity in the futures market of the National Commodity and Derivatives Exchange (NCDEX). However, the Securities and Exchange Board of India (SEBI) in December 2021 banned the trading of soyabean, along with six other agro commodities, on the futures platform. The hedging desk for cotton and maize was established to provide training and guidance to farmers and FPOs on participating in the commodity futures market. Nevertheless, 'it is going to be a bloodbath' for soyabean farmers, according to Ufade. 'Even before sowing, prices are far below the government-declared minimum support price (MSP). With no guidance on prices, it will be difficult to form any logical decision about offloading,' said Ufade. SEBI imposed a ban on soyabean to prevent speculation in commodities, which the regulator believed was causing unusual price fluctuations in the physical markets. Market participants, however, have strongly denied this claim. The ban remains in force, with soyabean prices trading well below their MSP for most of 2023 and 2024. This year, as Ufade said, the prices are almost Rs 1,000/quintal less than the MSP of Rs 4,986/quintal even before the sowing has finished. For FPCs like Vikas Agro, the futures platform served as an alternative to traditional markets for offloading their produce. 'Before the ban, we traded over 500 tonnes of soyabean on the platform. If anything, the price guidance available in the futures platform would have helped us to decide on whether to sell in the wholesale markets of Latur or hold on to the produce for more time,' Ufade said. The futures platform showed price movement three months in advance. 'For our members, this was the biggest advantage of the platform. If the prices in September are below our expectations, instead of soybeans, they would go for some other crop. At least there was some price point to take the call. Now it is all up in the air,' explained Ufade. According to agri commodity analyst Dipak Chavan, the SEBI's decision to ban futures trading was not in line with established norms or reasons. 'Across the world, agri commodity exchanges have helped farmers and the agricultural community at large to develop price insights. This ban makes no sense,' he said. Partha Sarathi Biwas is an Assistant Editor with The Indian Express with 10+ years of experience in reporting on Agriculture, Commodities and Developmental issues. He has been with The Indian Express since 2011 and earlier worked with DNA. Partha's report about Farmers Producer Companies (FPC) as well long pieces on various agricultural issues have been cited by various academic publications including those published by the Government of India. He is often invited as a visiting faculty to various schools of journalism to talk about development journalism and rural reporting. In his spare time Partha trains for marathons and has participated in multiple marathons and half marathons. ... Read More
Hans India
7 minutes ago
- Hans India
IndusInd Bank likely to submit CEO shortlist to RBI amid leadership overhaul
IndusInd Bank's board is likely to unveil its shortlist for the next chief executive officer (CEO) on Monday, a key development as the lender looks to bounce back from months of disruption triggered by a derivatives trading fiasco and subsequent leadership crisis. The move comes in response to the Reserve Bank of India's (RBI) directive, which asked the bank to submit its CEO recommendations by June 30. According to reports, as that deadline arrives, three names have emerged as frontrunners for the top post: Rajiv Anand, currently Deputy Managing Director at Axis Bank and set to retire in August; Anup Saha, Managing Director at Bajaj Finance known for his expertise in digital and retail banking; and Rahul Shukla, former Group Head at HDFC Bank, who is currently on a sabbatical and is recognised for his deep experience in commercial and rural banking. The new leader will be responsible for restoring investor confidence, tightening internal controls, and guiding the bank through a phase of rebuilding and regulatory scrutiny, as per reports. The leadership change comes amid an ongoing investigation by the Securities and Exchange Board of India (SEBI) into accounting irregularities at the private sector lender. Earlier this month, SEBI issued a corrigendum to its interim order, clarifying that the global consulting firm KPMG was appointed based on an 'engagement note' rather than a more formal 'board note'. This correction was part of a broader probe into how the bank handled internal discrepancies that eventually led to a reported financial loss of Rs 2,093 crore. KPMG was brought in by IndusInd Bank in February 2024 to assess the financial impact of the irregularities. Despite the scale of the losses, SEBI found that the bank failed to disclose this information to stock exchanges on time or mark it as price-sensitive data until early March 2025. The regulator named four senior executives for their roles in the matter and barred them from dealing in securities until further notice.
Hans India
12 minutes ago
- Hans India
Mumbai records best half-yearly performance with 75,982 property registrations
Mumbai city (under BMC jurisdiction) registered 75,982 property sales in the January-June period (H1 2025), marking a 5 per cent (on-year) increase, according to a report on Monday. Revenue from these registrations rose by 15 per cent (on-year) to Rs 6,727 crore, with both metrics recording their strongest half-yearly performance since 2013, said the report by Knight Frank India. The month of June recorded registration of 11,521 properties, denoting a moderation of 1 per cent, while revenue from these registrations totalled Rs 1,031 crores, reflecting a 2 per cent rise versus the same month last year. Registrations were primarily residential with 80 per cent registrations in the segment. 'Mumbai's residential market continues to reflect steady buyer confidence, as registrations consistently stay above the 11,000-mark year-on-year. What's particularly encouraging is that this sustained demand has led to the city's strongest half-yearly performance in over a decade,' said Shishir Baijal, Chairman & Managing Director, Knight Frank India. While we've seen some cooling in the mid-price segments, the appetite for larger homes and properties priced above Rs 5 crore remains strong, driving healthy revenue collections, he mentioned. June reflected a distinct shift in buyer activity, with momentum skewed towards the higher price brackets. The share of registrations for properties priced above Rs 5 crore rose from 5 per cent in June last year to 6 per cent. Apartments up to 1,000 sq ft continued to dominate Mumbai's residential registrations in June, accounting for 84 per cent of all transactions, broadly stable compared to 83 per cent in June 2024. Within this, the 500–1,000 sq ft segment remained the most popular, inching up from 44 per cent to 45 per cent. The share of units up to 500 sq ft held steady at 39 per cent YoY. Larger apartments maintained their presence, with units sized 1,000–2,000 sq ft unchanged at 13 per cent and those above 2,000 sq ft steady at 3 per cent. This underscores the enduring preference for compact homes, even as a niche segment of buyers continues to explore more spacious living options, said the report.
