Indian smallcap and midcap stocks underperformed the blue-chip Sensex in 2025, a year marked by market normalization after exceptional gains in 2023-2024. Factors contributing to this included elevated valuations, profit-booking, rupee depreciation, US-India trade concerns, and foreign fund outflows. Despite this, the outlook for these smaller indices is cautiously optimistic, with expectations of selective opportunities emerging as valuations cool and earnings visibility improves, supported by India's GDP growth and domestic liquidity.