The BSE Smallcap index recorded its sixth consecutive weekly gain on Friday, with 40 individual stocks hitting fresh 52-week highs during the week. The rally has been propelled by consistent buying from domestic mutual funds, which have been deploying SIP money into small-cap funds at the rate of Rs 4,200 crore per month — the highest ever recorded by AMFI.
Top gainers in the small-cap space included defence component makers, specialty chemical firms and rural consumption plays. Several small-cap stocks in the electronic manufacturing services space have seen 50-80% gains over the past three months as global brands accelerate their China+1 sourcing strategy and India emerges as a preferred alternative manufacturing destination.
SEBI's mandatory stress test disclosure shows that the average time to liquidate small-cap fund portfolios has stretched to 28 days from 18 days a year ago, raising concerns about liquidity risk. Several AMCs have introduced additional guardrails such as swing pricing and purchase restrictions on small-cap funds. Investors with a short investment horizon are advised to approach small-cap allocations with caution at current valuations.
