Nifty Smallcap 100 index rises 2%, extends two-day rally to 3.5%; Ola, Sona Comstar lead gains: What lies ahead?

The rise in the electric scooter makers' shares came on the back of strong results by Ather Energy. The Rizta scooter maker posted second-quarter net profit of Rs 1.5 crore, compared with a loss of Rs 154 crore a year earlier. Revenue rose 62.9% to Rs 1,464 crore in the quarter through September 30. The company said margin expansion was mostly driven by its product mix and pricing decisions despite a high input-cost environment.

High fuel prices and concerns over nationwide rollout of E20 petrol, which contains 20% ethanol, have supported adoption of EVs, including Ather's scooters. At 11:10 am on October 27, Nifty Smallcap 100 index was trading 2.2% higher at 18,387.05 while Nifty Midcap 100 index was trading nearly 1% higher, thus outperforming the benchmark indices Sensex and Nifty, which were trading flat. Nifty Smallcap 50 and Nifty Smallcap 250 indices were also trading 2% higher each.

Bottom-up investment opportunities remain attractive in quality smallcap companies over the next 12-24 months, supported by resilient corporate balance sheets, healthy domestic demand, improving cash flows and sustained capital expenditure intentions, according to Monarch AIF. "Between 25th February and 7th October, the Nifty 50 has declined over 11%, while the Nifty Small Cap 250 and Nifty Micro Cap 250 have delivered returns of roughly 11.7% and 22% respectively.

“The result has been a substantial performance gap of nearly 23 percentage points in favour of smallcaps and over 33 percentage points in favour of microcaps relative to the headline index,” observes Abhisar Jain, Fund Manager, Monarch AIF. "Only 16% of Smallcap 250 stocks are trading above their 50-DMA, placing breadth firmly in the oversold zone. Just 40% remain above their 200-DMA, indicating that the deterioration is no longer confined to short-term momentum.

The sharp decline in both breadth measures highlights significant internal damage despite the index remaining relatively elevated. "The 50-DMA breadth is particularly noteworthy as it approaches the 10–20% historical stress zone, where tactical rebounds have often become possible. Smallcaps are witnessing extreme breadth compression, creating the potential for a sharp mean-reversion move if participation starts recovering," said JM Financial last week.