Mid-, smallcap stocks overheated; rally an irrational exuberance: Analysts

The S&P SBE Smallcap index has given a stellar return - rising over 32 per cent in 2023

The recent rally in the small-and mid-cap (SMID) stocks is not backed by fundamentals and is a case of irrational exuberance, said analysts at Kotak Institutional Equities in a recent report. Fundamentals of most companies, they said, have in fact worsened over the last few months. Yet, some analysts expect the bull-run in these stocks to continue amid intermittent corrections.

"There is no meaningful change in the fundamentals of most (mid, smallcap) companies; in fact, they have worsened in many cases. The primary driver of the rally appears to be irrational exuberance among investors, with high return expectations being driven