High crude prices, rise in lending rates take toll on small-cap stocks

The small cap stocks have registered a sustained rally in the last few months with steady flow in small-cap mutual fund schemes | Photo Credit: John Kevin

After the dream run, small-cap company stocks are facing the tremors of rising crude oil prices and prospects of hike in lending rate which are expected to hit their earnings growth in the second half of this fiscal.

In the last two weeks, the Nifty 100 small-cap index has dropped 7 per cent or 1,441 points to 17,985 points on Monday from 19,426 points on October 12. Similarly, all the indices tracking the small-cap stocks have crashed as investors rushed to book profits. However, the Nifty small-cap 100 was up 246 points (1.38 per cent) at 17,985 on Monday against 17,739 logged on Friday.

Some of the stocks that have faced the brunt include CreditAccess Grameen and Himadri Speciality Chemical that have crashed 25 per cent and 23 per cent, respectively, to ₹998 and ₹512 in last two weeks.

Similarly, Deepak Fertilisers and Ola Electric Mobility were down 18 per cent and 17 per cent, respectively, to ₹1,148 and ₹39 since October 12.

Record inflows

The small cap stocks have registered a sustained rally in the last few months with steady flow in small-cap mutual fund schemes. The net investment in small-cap mutual funds hit a new high of ₹24,779 crore in the September quarter against Rs 17,433 crore, despite most analysts cautioning on possible wild swing in small cap companies stock prices.

The high valuations in the large-cap stocks amid flat earnings growth had driven investors to chase the small-cap cap companies.

Vikas Gupta, CEO & Chief Investment Strategist, OmniScience Capital, said high crude oil prices drive high inflation which in turn requires high interest rates to bring it in control. Under such circumstances economic growth is at risk.

“The smallcap revenue and earnings growth is dependent on the global and Indian economy doing well. On top of this, the smallcaps were priced to perfection with the high PE ratios,” he said.

Even after the fall, he added the valuations remain elevated and investors are probably wary of smallcaps and are selling them as forecasted growth rates are at risk, he added.

Hitesh Tailor, Technical Research Analyst, Choice Broking, said the recent sharp correction in the Nifty Smallcap 100 reflects heightened selling pressure following its rally to an all-time high near 20,187 points.

The MCX crude oil November futures are trading about ₹9,600 per barrel, along with higher lending rates, could weigh on investor sentiment and keep volatility elevated in the small-cap segment, he added.

Published on October 26, 2026