Small-cap stocks lag behind the equity benchmark Sensex in 2022-23, falling nearly 6% amid negative factors, including a higher interest rate regime, high inflation and the war between Russia and Ukraine.

According to market analysts, this year has been volatile for Indian equities.

They noted that the first quarter was challenging for Indian stocks after the war with Russia and Ukraine, but there was a good rebound in the second and third quarters.

Headwinds such as high inflation, the Russia-Ukraine war, and rising interest rates have dampened investor appetite for small-cap stocks.

With just one day of trading left in the financial year, the BSE small-cap index lost 1,616.93 points or 5.73% so far in 2022-23. The midcap index is down 270.29 points or 1.12% in 2022-23.

The BSE Sensex shed 608.42 points or 1.03%.

The BSE Small Cap index is up 7,566.32 points or 36.64% for the financial year 2021-22, while the midcap index surged 3,926.66 points or 19.45%. In contrast, the Sensex ended 2021-22 up 9,059.36 points or 18.29%.

For FY21, the BSE Small Cap Index gained 11,040.41 points or 114.89%, while the Mid Cap Index gained 9,611.38 points or 90.93%. The 30-share BSE benchmark gained 20,040.66 points or 68% in 2020-21.

Meena said that investors also seek protection in the climate of uncertainty, with small-cap companies seen as riskier investments in the stock market.

The midcap index tracks companies with an average market capitalization of one-fifth of bluechip stocks, while small-cap companies make up almost one-tenth of the sector.

After the US short-seller, Hindenburg Research released a report on January 24, the market value of Adani Group’s 10 listed companies has shrunk sharply.

The BSE SmallCap Index fell to a 52-week low of 23,261.39 on June 20, 2022, before hitting a one-year high of 30,185.95 on September 15 last year.

The BSE Midcap Index hit a 52-week low of 20,814.22 on June 20, 2022, before returning to a one-year high of 26,440.81 on December 14 last year.

The Sensex reached an all-time high of 63,583.07 on December 1 last year, after hitting a one-year low of 50,921.22 on June 17, 2022.

On the outlook for mid-cap and small-cap indices for the next fiscal year, Meena said that Q1FY24 would likely be volatile as the environment remains uncertain. However, as the market becomes more particular about when US interest rates will peak, the overall market will trend upwards.

Market analysts said local investors generally bought small-cap stocks, while overseas investors focused on blue chips or large companies.