Are smallcap stocks showing signs of euphoria? Editors' Roundtable decodes

The smallcap index is currently 10 percent away from its all-time high, while the Nifty and midcap index are approaching or at all-time highs.

Despite this, certain stocks in the BSE Smallcap index have more than doubled in value this year. AurionPro Solutions has gained 198 percent, Nucleus Software Exports has gained 192.3 percent, and WPIL has gained 148.7 percent.

In the Nifty smallcap index, there are also some noteworthy gainers. Cyient has gained 83.3 percent, Rail Vikas Nigam Limited is up 79.9 percent, and KEI Industries is up 53.3 percent.

However, within the Nifty500 index, several stocks are currently trading at high valuations. For example, Data Patterns has gained 71.5 percent but is trading at 66.02 times its FY24 earnings. Triveni Turbine gained 61.8 percent but is now trading at 52.23 times its FY24 earnings, and Medplus Health, which gained 30.2 percent, is trading at 117 times its FY24 earnings.

Even among the losers, valuations remain high. United Breweries is down 10.8 percent but still trades at a valuation of 67.99 times its FY24 earnings. Aditya Birla Fashion lost 27.3 percent but continues to trade at 100.41 times its FY24 earnings.

Therefore, it is important to take note of the rich valuations in some midcap and smallcap stocks. Generally when the smallcap index trades at a premium to large caps and midcaps, it often indicates signs of euphoria.