When the Nifty sneezes, small-caps catch a cold. So, when the Nifty took a beating, small-caps came under pressure. However, things were slightly better this time. The pressure was not as bad as in the past – especially for companies with improved Q2 earnings. Small-caps have another characteristic: Specific stocks tend to perform better if the macro factors impacting their sectors improve. For example, some small-caps in the infrastructure sector saw tough times till 2015. But now they have full order books thanks to government spending on road and infrastructure projects. So, while liquidity is one part of the small-cap story, there is another part: Macro improvement.
