Smallcap stocks rally up to 12%, index extends gains for fourth day: Here are the top gainers

Smallcap stocks continued their record rally on June 5, pushing the Nifty Smallcap index into the green for the fourth consecutive session this week. The smallcap index is continuing to outperform benchmark indices as well as its midcap counterpart.

Notably, the combined market capitalization of the stocks listed on the Nifty Smallcap 100 index has witnessed a significant increase of over Rs 17,000 crore in the first three days of the week itself, dodging the bouts of volatility. With the stocks extending significant gains today as well, the index is set to see a further rise in its mcap.

FirstCry-parent Brainbees Solutions is the top gainer on the index, with its shares rallying nearly 12 percent to trade at Rs 408 apiece. Notably, the stock is currently seeing strong investor interest, trading at volumes over 4 times higher than its 10-day average.

Data Patterns shares followed, gaining over 6 percent to trade at Rs 3,171 apiece. The defence stock has seen a significant rise in recent days, accompanying its peer stocks in the sector amid geopolitical tensions.

Welspun Corporation shares rose 5.6 percent after it announced that it has received a repeat export order for the supply of 50 km of LSAW Piper and Bends for a critical offshore project in Middle East.

Garden Reach Shipbuilders and Engineers (GRSE) shares gained nearly 5 percent to hit a fresh record high after the defence PSU announced fresh global collaborations.

Other notable smallcap stocks which recorded significant gains included Welspun Living, RITES, Angel One, RailTel Corporation of India, Brigade Enterprises, Laurus Labs, CDSL, MCX, NBCC, Jupiter Wagons, Castrol India, Sagility India, Reliance Power, BEML and more.

Despite the strong surge, some analysts advice caution. "Smallcap stocks have seen a sharp rally recently, driven by strong domestic flows and sentiment. However, many are now trading at a significant premium to large-cap peers, raising concerns about stretched valuations. Sustaining this momentum will largely depend on how earnings evolve in the coming quarters. Given global growth headwinds and valuation risks, a broad-based upside looks limited. That said, selective opportunities do exist where stock-specific fundamentals and long-term potential remain attractive and better aligned with reasonable valuations," said Ajit Mishra – SVP, Research, Religare Broking Ltd.

Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said, "Despite the challenging investment environment and market volatility, the small-cap segment of the Indian stock market has displayed resilience over the last three months, outperforming broader market benchmarks. However, due to their inherent volatility, it is crucial for investors to approach small-cap investments with discipline. While the potential for significant returns is evident, the risks are also heightened in this segment."

He added, "When considering exposure to small-caps, investors should adhere to their asset allocation strategy and risk appetite, investing in line with their overall financial plan. It's important not to go overboard in this segment simply because it has performed well recently. A long-term investment horizon is key to weathering the ups and downs of the small-cap space."

Motilal Oswal Financial Services in an earlier report had cautioned investors about the potential risks in the segment. "Smallcaps remain a barbell segment, capable of both strong rebounds and deep corrections. Earnings volatility remains high, and stock selection is critical. Investors should focus on quality names with sustainable business models, visibility, and operating leverage," it had said.Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.