MUMBAI – After a muted show in FY23, domestic equities saw a stunning turnaround in FY24 as benchmark Nifty 50 gave high double-digit returns of more than 27%. But it’s the little ninjas, aka, the smallcaps that stole the show this year.

Beating the benchmark by a wide margin, the Nifty Smallcap 250 index has given a staggering 63% returns in this financial year.

Thanks to their stupendous run, the total market capitalization of all the listed companies on BSE soared by Rs 125 lakh crore in a year.

During the year, Sensex, Nifty, all midcap and smallcap indices, and several sectoral indices scaled lifetime highs.

Robust corporate earnings, high capital investments by the government, strong domestic economic growth, and favourable monetary policy conditions were the key factors driving the massive show on Dalal Street.

The unperturbed faith of retail investors, coupled with higher participation of both foreign investors and mutual funds led the strong rally in midcap and smallcap stocks and also drove the market capitalization. Also Read | Smallcap stock investors hit Rs 26 lakh-crore jackpot in FY24 …While largecap stocks have relatively underperformed during this year, many of them have still managed to give double-digit returns, and a few also turned multibaggers.

Among Nifty 50 stocks, Coal India, Adani Ports and Special Economic Zone, Tata Motors, and Bajaj Auto were investors’ favourites, as they gave a whopping 101-136% returns in FY24.

About 41 stocks that are part of the benchmark index, gave double-digit returns of upto 95%, Index heavyweight Reliance Industries gave 28% returns, while Tata Consultancy Services gave around 20% returns.

Had it not been for the underperformance of HDFC Bank, the returns of Nifty 50 would have been higher. HDFC Bank has given negative returns of over 10% in FY24, and joining it was also Hindustan Unilever, which lost close to 13%.

Among sectors, manufacturing-related sectors – automobiles, capital goods, consumer durables, defence, industrials, etc – rallied sharply, aided by the government’s efforts to push local manufacturing.

Public sector stocks were at the top rank, as strong improvement in their fundamentals and attractive valuations drove higher participation, particularly by retail investors.

While the midcap and smallcap stocks had one of their best times in the history in FY24, concerns are now growing around the frothy valuation in some of the pockets, and the same was raised by the market regulator SEBI, which has resulted in some volatility in the pack.

While in the near term, experts see possibility of some correction in the broader market, the overall outlook remains positive.

“There has been a sharp run-up in pockets of mid and smallcaps and, thus, stocks where the recent price rise is not backed by improvement in underlying fundamentals will be more susceptible to correction,” said Prateek Pant, chief business officer at Whiteoak Asset Management.

However, from a structural perspective, for active managers, the small and midcap segment offers ample alpha generating opportunities.

“Seen in the perspective of other EM peers, India has the most diverse and heterogeneous set of companies within small and mid-caps,” Pant said.

As for the index, the overall structure is positive and analysts see scope for gains.

“The index has witnessed a significant rise from 17360 level to touch the high of 22525 level, gaining almost 29% and currently hovering near the all time high zone, maintaining a strong uptrend…It has further scope of upward movement, having higher targets of 22700 and 23200 levels for the medium-term time frame,” said Shiju Koothupalakkal, technical analyst at Prabhudas Lilladher.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)