A study by Kotak Institutional Equities reveals that the recent surge in mid-cap and small-cap stocks is led by top performers with lower free float, indicating a potential sense of scarcity driving up demand. The Nifty SmallCap 100 and Midcap 100 have seen significant year-to-date gains, outpacing the benchmark Nifty 50. The study notes that better fundamentals, a compelling narrative, and high potential returns are contributing factors to the exceptional performance of these stocks. However, Kotak cautions that market expectations for mid-cap and small-cap stocks may be overly optimistic, and a correction in stock prices reflects growing nervousness about sustaining significant gains without substantial improvements in financial and operational performance.