The Nifty Smallcap 100 and 250 indices have risen by about 10% each so far in 2026, while the benchmark Nifty 50 index is down 13%. Small cap mutual funds recorded a third consecutive month of robust inflows in September, drawing a record ₹9,038 crore, according to AMFI data. What factors are driving investor appetite for higher-risk smallcaps, and conversely, what is causing large caps to fall out of favour?
The strong rise in small caps, while the benchmark index remains weak, is mainly due to steady buying by domestic retail investors and changes in investment by FIIs. Record monthly SIP inflows invested in small-cap funds create regular domestic demand for high-growth sectors focused on India. These include defence indigenisation, renewable power, capital goods, and domestic manufacturing, where many mid- and small-sized companies are reporting earnings growth of more than 20% and have fewer shares available for trading.
