Smallcap stocks have staged a sharp rebound over the past two trading sessions, with select constituents of the Nifty Smallcap 100 surging as much as 21.30%. The index has gained over 4% during the period, prompting investors to assess whether the recovery has further legs or whether it is time to book profits.

Ather Energy led the rally, climbing 21.30% over the last two sessions, followed by Acutaas Chemicals, which gained 20.89%. Onesource Specialty Pharma advanced 19.17%, while Mangalore Refinery and Petrochemicals rose 16.76%. Ola Electric Mobility gained 16.27%, Sona BLW Precision Forgings advanced 13.15%, and Sterlite Technologies and Himadri Speciality Chemical rose 10.19% and 10.06%, respectively, according to ACE Equities data.

The rally gathered momentum on Tuesday, October 27, with the Nifty Smallcap 100 rising 2.69% to close at 18,468.70. The index has gained 4.31% year-to-date in 2026, even as the benchmark Nifty 50 has declined nearly 13% over the same period.

However, technical analysts have cautioned against interpreting the sharp recovery as confirmation of a sustained turnaround. While buying interest has emerged at lower levels, the index continues to face key resistance levels, making the sustainability of the rebound crucial.

Should you chase the smallcap rally or book profits?

Jigar S Patel, Senior Manager–Technical Research at Anand Rathi Share and Stock Brokers, said the Nifty Smallcap 100 had witnessed a sharp recovery, indicating buying interest at lower levels. However, he said the broader technical structure continued to warrant caution.

During the previous week's sell-off, the index's daily Relative Strength Index (RSI) slipped below the crucial 30 mark, signalling significant weakness in momentum. The hourly RSI has also yet to cross above 70, indicating that strong bullish momentum is still awaiting confirmation.

“Therefore, despite the recent recovery, the possibility of another pullback cannot be ruled out,” Patel said.

From a technical perspective, 18,000 is the immediate support for the index, followed by 17,600. On the upside, 18,800 is the immediate resistance, while 19,000 is the next hurdle.

A sustained move above these levels, supported by improving RSI momentum, would strengthen the recovery outlook. Until then, Patel advised traders to remain cautious and avoid chasing the rally.

Deepesh Sarawagi, Technical Research Analyst at Choice Broking, said the Nifty Smallcap 100 had rebounded sharply after finding support in the 17,400–17,500 zone, indicating buying interest at lower levels. He sees the recovery extending towards 18,600–18,900, followed by the 19,050–19,200 resistance zone. However, the index continues to trade below its 20-day, 50-day and 100-day exponential moving averages (EMAs), indicating that the broader trend remains under pressure.

The 200-day EMA, near 18,618, is the immediate hurdle, Sarawagi said. A sustained move above this level would strengthen the prospects of a recovery.

The RSI has rebounded to 40.27 from oversold territory, pointing to improving momentum. According to Sarawagi, the rally could extend in the near term, provided the index holds above 18,000–18,200.

He suggested that investors consider partial profit booking near resistance levels while maintaining a cautiously bullish outlook.

Firstsource, CDSL, PW among top stocks to buy

Sarawagi has further recommended three stocks—Firstsource Solutions, CDSL and Physicswallah—for investors to consider, citing improving technical indicators and signs of a potential recovery.

For Firstsource Solutions (FSL), he has recommended buying at Rs 299, with a target price of Rs 330 and a stop loss of Rs 284. The stock has broken above a downward trendline on the daily chart, supported by volumes, while the bullish crossover of its 20-day EMA above the 200-day EMA and an RSI of 66.64 indicate positive momentum.

For CDSL, Sarawagi has suggested buying at Rs 1,222, with a target of Rs 1,350 and a stop loss of Rs 1,160. The stock has shown signs of recovery after finding support in the Rs 1,150–Rs 1,160 zone and moving above the previous session’s high. Its RSI has rebounded from oversold territory to 38.65, suggesting easing selling pressure.

For Physicswallah (PWL), the analyst has recommended buying at Rs 129.89, with a target price of Rs 147 and a stop loss of Rs 121. The stock has formed a bullish reversal candle near its Rs 120–Rs 123 support zone, rebounded from the rising 200-day EMA and reclaimed its 50-day and 100-day EMAs. Its RSI has also turned upwards to 49.47, indicating that downward pressure may be easing.

Data compiled by: Ritesh Presswala

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here