After seeing sharp losses last year, the BSE's mid-cap and small-cap indices have rallied smartly so far this year, with several of their constituent stocks giving handsome returns.
The BSE's mid-cap and small-cap indices have outperformed their large-cap peers so far in 2012, growing by as much as 26% compared to the broader market benchmark Sensex.
While the mid-cap index of the BSE has given a return of 26.15%, since the beginning of 2012, the small-cap index has gained 23%.
In comparison, the blue-chip barometer index Sensex could only manage to rise by 12.68%.
Most stocks in the mid and small-cap segments were beaten heavily during the last year, as their financial performance. were impacted by rising interest rates, analysts said.
The mid-cap and small-cap indices plunged by 34% and 42%, respectively, during 2011. The Sensex slumped about 25% during the same period.
Macroeconomic headwinds on the global and domestic front and concerns over policy reforms and currency fluctuation were some of the major factors that resulted in volatile and uncertain market conditions through 2011.
Experts said that expectations of a possible interest rate cut by the Reserve Bank at its policy review later this month has resulted in a strong performance by companies from the interest rate sensitive sectors.
Shares of companies like HDIL, Lanco Infra, IFCI, Orbit Corp, have surged by 60.77%, 95%, 86% and 109%, respectively, so far this year.
"The mid-caps had corrected more than required and many stocks were trading below the book value. Interest rate cut will happen at the most by June and hence, lot of value buying is on an will continue in," CNI Research CMD Kishore Ostwal said.
The mid-cap indices track the performance of companies with market capitalisations that are a fifth of that of the blue-chip firms, while the small-cap firms are of almost one-tenth of the size of large-caps.