The Nifty Smallcap 100 Index has rallied more than 18% in April, a milestone achieved only twice before in data dating back to 2004, Bloomberg reported. In comparison, the broader benchmark index has gained around 7% this month.
The rebound in smallcaps, often viewed as a gauge of market sentiment and investor risk appetite, follows a sharp correction from the highs seen in 2025. It also comes as some brokerages have raised their earnings expectations.
The index had previously surged more than 22% in May 2014, during the period when Prime Minister Narendra Modi-led alliance secured its first national election victory.
The measure had fallen 10% last month during a wider market selloff triggered by the US-Iran war. That decline pushed the index’s price-to-earnings ratio to a one-year low, briefly slipping to around one standard deviation below its recent average, a level often considered an attractive entry point by investors.
As the Iran war enters its third month, India’s equity market has clearly split into two contrasting trends. The Nifty50 has fallen nearly 5%, losing around 1,200 points as crude oil prices rise above the $100 mark and tensions around the Strait of Hormuz weigh on the macro outlook.
In contrast, the Nifty Smallcap 250 has gained 5.4% during the same period, marking a sharp divergence that suggests domestic retail investors are betting the geopolitical turbulence will fade before it significantly impacts corporate earnings.The sharp rally comes despite a series of major downgrades on Indian equities over the past two months, a period when smallcap stocks would typically face the strongest pressure.
JP Morgan has gone a step further by downgrading Indian equities to Neutral. “Already bruised by a dismal 2025, the Nifty 50 could be headed for another challenging year,” the bank’s strategists said, citing that Nifty could fall to 20,500 in its bear case.
It flagged multiple risks to earnings, including potential energy supply disruptions, which could impact companies across sectors. Reflecting this, sector analysts have already cut FY27 earnings estimates by 2% to 10% across key segments. JPMorgan has also lowered its CY26E and CY27E MSCI India EPS growth forecasts by 2% and 1% to 11% and 13%, respectively.
Earlier this month, HSBC downgraded India to Underweight from Neutral, marking its second downgrade in two months. The brokerage cited rising inflation risks driven by higher oil prices and demand pressures that could weigh on earnings growth.
“The ongoing West Asia conflict has brought focus back to downside risks for growth, given India’s heavy dependence on imported energy,” HSBC said in a client note. “While growth has shown signs of improvement over the past two quarters, we expect the recovery to be delayed from here.”
HSBC had earlier cut India to Neutral in late March, saying the risk-reward equation had turned less favourable. While the March market correction helped reduce valuation concerns, it warned that pressure on corporate profitability could offset that benefit.
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