The positive macroeconomic factors and government initiatives are lending a push to the small-cap stocks

The Nifty small-cap index hit an all-time high on June 20, 2023, continuing the rising streak of the smaller stocks in the past three months.

The Nifty small-cap 250 scaled to a new high of 10, 535.25 prior to closing at 10,524.90 a rise of 42.4 points or 0.4% from the June 19, 2023, close.

The index had witnessed a dip of 0.5% earlier in the day before experiencing a late rebound. The BSE Sensex and NSE Nifty had also witnessed a dip of about 0.6% in early transactions, reduced losses, and ended a notch higher by about 0.3%.

Considering that small-caps are known to provide attractive growth prospects, the upward movement is adding to the momentum among traders, and investors who continue to remain bullish.

The small-cap 250 index has risen 23.7% from the low experienced on March 28, 2023. The NSE mid-cap 150 is on the rise at about 20% during this time. At the same time, the Nifty is at a high of 11%.

The small-cap 250 index trades about 20.8 times its one-year forward price-to-earnings (P/E) ratio in contrast to its own historical valuation of about 23-24 times. The NSE Nifty’s P/E stands about 22 times in comparison.

Analysts attribute the current gains in small-cap stocks to various positive macroeconomic factors as well as government policy interventions related to production-linked incentive (PLI) schemes.

The mid-caps and small-caps have been outperforming large-caps for the past few months and the trend is likely to continue, predict experts.

However, investors are suggested to act with discretion when it comes to portfolio management during sharp rallies considering they are followed by sharp corrections in the equity markets.

Adopting a suitable asset allocation strategy is essential while striking the right balance among the different asset classes in such a scenario.