Four small-cap companies have more than doubled investor wealth in 2020 as pharma and chemicals continued to outperform. These include Laurus Labs (up 215 percent), GMM Pfaudler (up 199 percent), Granules India (up 155 percent), and Dixon Tech (up 113 percent).

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Overall, the broader markets have recovered well from March lows continued its upward journey and outperformed the Nifty - smallcaps by 8 percent and midcaps by 5 percent in August. They also turned briefly positive 2020 YTD as compared to a 6 percent fall in benchmarks.

Meanwhile, in the mid-cap space, 5 companies have returned more than 50 percent in 2020, again dominated by pharma sector. Escorts, IPCA Labs, Vodafone Idea, Tata Consumer, and Ajanta Pharma rose between 52 percent and 73 percent YTD.

In a report, ICICI Direct said that the current rally of the broader markets from March 2020 lows is the highest quarterly gain since 2014 indicating structural turnaround. Midcap and smallcap segments also seem to be at the cusp of the next major bull market signaling their outperformance ahead, it added.

Given the run-up seen since March, analysts are now advising looking at good quality stocks with robust balance sheets, strong cash flow, and dedicated management. They see midcaps and small-cap performance slowly picking up and believe that once the volatility index settles below 20 then midcaps and small caps are likely to see significant outperformance.

Morgan Stanley also believes that Indian small and mid-cap stocks are ready for outperformance on the back of a growth recovery and attractive valuations.

Other Smallcap stocks like IndiaMart, Deepak Nitrite, Rallis India, Suzlon Enery, IRB Infra, Strides Pharma, India Cements, Firstsource Solutions also rallied in 2020, surging over 50 percent each.