India's $775 bn stock boom at risk as small caps overheat

The rally in Indian equities that has swelled the market's total valuation by $775 billion in a little more than five months has been accompanied by a notable shift in investor preference to smaller stocks.

That poses risks as gauges of small and mid-cap shares show signs of overheating, and as domestic economic outlook becomes more clouded ahead of national elections next year.

Smaller companies are seen benefiting more from the ongoing recovery in India's capital expenditure. Larger stocks, in contrast, have been relatively restrained by worry over the impact of a possible global recession on the nation's major IT firms, as well as fallout from a short-seller campaign against the sprawling group controlled by billionaire Gautam Adani.