NIFTY small-cap 100 soars 13% in 2026 to fresh record highs; here is what lifted sentiment for smallcap stocks

The benchmark indices are treading in the negative territory on a YTD basis, delivering -8% returns for NIFTY50. However, the broader markets are outperforming the benchmark indices by a wide margin, with the NIFTY Midcap and Smallcap indices making fresh record highs in 2026. The NIFTY Midcap 100 and Smallcap 100 indices have advanced 5.8% and 13.5% in 2026 on a YTD basis. Moreover, the NIFTY Microcap 250 index soared the most, up 17.5% in the same period. Most of these indices have hit fresh record highs after two years.

However, the rally is influenced by changed dynamics and multiple other factors. Here are the top factors that drove the current rally in NIFTY Smallcap 100.

Change in index composition

The NIFTY Smallcap 100 index has seen many changes in the index composition since the previous record high levels were touched in December 2024. During these two years, the index witnessed significant churn in the portfolio in the three major semi-annual reviews and rebalancing. During the first semi-annual review occurred in March 2025, ~10-12 stocks were eliminated from the index, followed by another 10-12 stocks in December 2025.

However, in the March 2026 rebalancing, 24 stocks out of the 100 were eliminated, creating a major shift in the benchmark’s composition. Among the key new additions, stocks like GE Vernova T&D, Hindustan Copper, Anupan Rasayan, Anthem Biosciences, Blue Jet Healthcare, ICICI Prudential AMC, Piramal Finance, HDB Financial, Tata Capital, and NTPC Green were the new additions to the index.

Change in sectoral weightage

Besides the new additions, the sectoral weightage also contributed majorly in driving the current rally in the NIFTY Smallcap 100 to fresh record high levels. The sectoral composition largely remained skewed towards Financial Services, Healthcare, Capital Goods, Chemicals, Services, and others. However, the current sectoral composition highlights aggressiveness and strong conviction towards key sectors. For example, Financial Services sectoral weightage increased from 24.2% in December 2024 to 32.2% in July 2026. Similarly, the Healthcare sector’s weightage increased from 10.2% to 13.2% in the same period.

Besides these two, the Automobile & Auto Components sector witnessed a strong increase in the weightage from 2% in December 2024 to 8.06% in July 2026, followed by Metals & Mining (+1.4%) and Realty (+0.21%).

Earnings growth

Besides the change in sectoral and index-level composition, earnings witnessed significant improvement during the past two years. Since the previous peak touched in December 2024, the overall earnings have grown by 22.7%, outpacing NIFTY50 (+11.8%) and NIFTY 500 (+7.5%) indices by a wide margin. The earnings growth was primarily driven by skewness towards high-growth sectors like Financials, Healthcare, Automobile, Capital Goods, and others.

Valuations

With the strong earnings growth, the valuations showed strong affordability, attracting strong inflow by the institutional investors. At the previous peak touched in December 2024, the index was trading at over a 36x price-to-earnings ratio, displaying strong overheatedness, with no major surprises in the earnings growth.

However, even at the current record-high levels, which are over 6% above the previous record levels of 19,716, the index continues to trade at 31x price-to-earnings, showing a sharp discount to the previous record-high valuations and closer to the 5-year median price-to-earnings ratio of 29x. The current rally displays strong undercurrents in earnings and apt sector diversification.