The beginning of the year 2025 has not been very good for the Indian market which has been facing a lot of upheaval for some time now. During this period, a huge decline is being seen in mid and small cap stocks. Both these indices have performed worse than the benchmark Nifty 50 in 2025. Meanwhile, analysts also do not see any relief in this soon.

So far in the current year, the Nifty Midcap 150 index has declined by about 7%, while the Nifty Smallcap 250 index has declined by about 9%. The Nifty 50 index has seen a decline of about 2% during the same period. Overall, 280 of the 400 stocks (70%) included in the index are trading below their respective 200-day moving average (DMA).

Why did the decline happen?
Foreign investors continue to sell. However, during this time domestic investors are investing heavily in the Indian market. Apart from this, quality remains an important issue in the market. In fact, large-cap stocks are resilient, while the market is weakening. Both these trends are expected to continue in the coming times. Because the dollar index and US bond yields remain high, FIIs are unlikely to return to the Indian market soon.

Investors' confidence in large caps increased The decline in midcap and smallcap stocks has come after many years of excellent performance. The last time these two indices gave negative returns was in 2019. During that time Nifty Midcap 100 fell by 4% and Nifty Smallcap 100 by 10%. Since then, mid and smallcap stocks have seen a tremendous rise, making their valuation expensive compared to largecap stocks. Due to this, they see better value in largecap stocks and prefer them over mid and small-cap stocks in the year 2025. Which stocks saw a decline in 2025 So far, 109 stocks (72%) of the 150 stocks included in the Nifty Midcap 150 index are trading below their respective 200-day moving average (DMA). On the other hand, 171 stocks (68%) included in the Nifty Smallcap 250 index are trading below their respective 200-day. During this period, Kalyan Jewellers India, Keynes Technology, Aditya Birla Real Estate, KEC International, Oracle Financial Services Software, Oberoi Realty and PB Fintech were the most affected. They have declined up to 37% during this period. On the other hand, Vodafone Idea, SBI Cards and Payment Services, Navin Fluorine International, SRF, Shyam Metallics and Energy, Redington and Sundaram Finance are some of the stocks that have registered a growth of up to 20% in the current year. When will the situation improve? Given the ongoing economic and political challenges around the world and rising oil prices, this trend may continue till March 2025. Meanwhile, those who can take the risk of a 5% to 7% decline at the index level can continue to hold the best small-and mid-cap stocks and add more such best stocks on every decline till the end of March 2024.