Small and micro-cap stocks are staging a remarkable recovery from West Asia conflict losses, outpacing blue chips as domestic investors return to the market.

Small and micro-cap stocks are staging a remarkable recovery from West Asia conflict losses, outpacing blue chips as domestic investors return to the market. The Nifty Small-cap 250 index has climbed 2% above pre-conflict levels after dropping 11%, while the Nifty Micro-cap 250 surged 4.5% from its 11.5% decline. Mid-caps are nearly at pre-war levels. Meanwhile, the benchmark Nifty remains down 3.9% due to persistent foreign investor outflows exceeding 1.6 lakh crore. Domestic institutions have countered with 1.77 lakh crore in purchases, particularly in smaller stocks. Analysts credit lower FPI exposure and better-than-expected earnings growth for the smaller segment's strength. Valuations have moderated to attractive levels, with small and mid-cap P/E ratios falling below historical averages.