Indian equities have had a difficult year since last Diwali, with the Nifty declining more than 11%. However, beneath the benchmark's weakness, a select group of smallcap stocks has delivered exceptional returns, with 60 companies more than doubling investors' money and the biggest winner surging nearly 650%.
According to an analysis of stock returns published by The Economic Times, Sterlite Technologies emerged as the top performer, with its shares rallying 649.7% since last Diwali. The optical connectivity and digital infrastructure company has attracted investor interest amid growing demand for data centres, artificial intelligence and communications infrastructure.
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Cupid was the second-biggest gainer, rising 527%, followed by Sigma Advanced Systems, which gained 464.4%. These were the only three stocks in the list to deliver returns exceeding 400%.
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Pharmaceutical companies also featured prominently among the biggest gainers. Bliss GVS Pharma surged 316.6%, while Kwality Pharmaceuticals advanced 312.9%. Ind-Swift Laboratories gained 259.6%, and Shilpa Medicare climbed 152.5%.
Defence, engineering and infrastructure-related stocks also delivered substantial returns. Swan Defence and Heavy Industries rose 262.9%, while Shreeji Shipping Global gained 248.5%. MTAR Technologies advanced 226.1%, followed by HFCL at 214.9%, Kabra Extrusiontechnik at 211.6% and Welspun Corp at 201.7%.
Sansera Engineering also delivered a strong performance, gaining 189.4% over the period.
Consumer-facing companies were not far behind. Tribhovandas Bhimji Zaveri shares rallied 246.8%, while Thangamayil Jewellery gained 137%. Electric two-wheeler maker Ather Energy advanced 114.9%.
Despite the sharp gains in individual stocks, the broader smallcap index has risen just 2.8% since last Diwali, highlighting how concentrated the rally has been. In comparison, the Nifty has declined more than 11%.
The strong appreciation in smallcap shares has also raised concerns about valuations. Sorbh Gupta, Head of Equity at Bajaj Asset Management, said the market value of smallcap companies has increased 2.3 times since April 2023, compared with a 1.4-fold rise for largecaps.
Smallcaps currently trade at 32.5 times trailing earnings, against 21 times for largecaps. Based on FY27 earnings estimates, the valuation stands at 27 times for smallcaps and 20 times for largecaps.
However, Gupta noted that valuations look more comparable when domestic non-financial companies are considered separately.
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Gupta said smallcaps offer long-term wealth creation opportunities but come with higher volatility and valuation risks. He suggested that investors looking to enter the segment could consider systematic investment plans with a five-year investment horizon, depending on their risk appetite and financial goals.
Global geopolitical tensions, elevated commodity prices, inflation and fluctuations in foreign investment flows remain key risks for equities.
The sharp gains delivered by these 60 stocks underline the opportunities within the smallcap universe. However, after such substantial rallies, investors may need to focus on earnings growth, business fundamentals and valuations rather than chase past returns.
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