After a disastrous year, where several small and midcap stocks plunged, it's looking like these set of stocks are making a comeback.

Late last week, we saw a sharp pullback in some of these stocks and on Monday the trend seemed to be reinforced.

Beaten down names like Vakrangee, Manpasand Beverages saw their shares hitting the upper end of the circuit filter on Monday. Other favorites like Avanti Feeds and Apex Foods also saw solid gains and ended sharply higher.

Shalby, which came out with an IPO at a price of Rs 248 and whose shares plunged to a 52-week low recently was up a huge 8 per cent in trade. Several other small caps like Ashapura Minechem was up 11 per cent. Even penny stocks like Alok Industries was locked at the upper end of the circuit filter.

Year to date the small cap index is still down 12 per cent, but, in the last one week it is up at 2.20 per cent, suggesting that there is a trend reversal in sight.

Ditto for midcap stocks, which are now seeing a smart rally in the last few weeks. Investors would do well to add to only high quality names from this space. In case you are looking at buying we suggest that you buy the dividend paying companies, with solid management track record and positive cash flows.

Some stocks like Jagran Prakashan, can give you excellent dividend yields as well.

Small and midcap stocks can always be a trap and in a falling market, they can wreck havoc to your portfolio, so just "look before you leap".