From 2019 to 2025, market capitalization of small-caps had increased from Rs 16 lakh crore to Rs 83 lakh crore, expanding its value by 5.30x. Smallcaps have recorded much faster appreciation in their market cap value compared to large-caps (2.55x) and mid-caps (3.89x). The constituency of the category has also expanded from 11% in CY 2019 to 19% in CY 2025 in the market cap universe of Indian equities, it added.
Should investors capitalize?
“With nearly half of the smallcap universe trading over 40% below their peak levels, investors have a compelling opportunity to accumulate fundamentally strong businesses at more sustainable valuations ahead of the next growth cycle,” Vaibhav Chugh, CEO, Abakkus Mutual Fund, said.
A meaningful share of companies within this bracket now offers improved risk–reward dynamics. Importantly, the smallcap segment provides access to sunrise industries and niche sectors that are often underrepresented in the large-cap space, making it an attractive avenue for diversified, high-growth exposure.
Smallcaps offer exposure to emerging and sunrise sectors shaping India’s growth story. These include Aerospace & Defence, Pharmaceuticals & Biotechnology, Electronics Manufacturing Services, EVs & Batteries, AI-led services, Renewables, Medical Devices, Travel & Tourism, and Auto Components. Many of these themes remain underrepresented in large-cap indices.
It also added that market resets like the recent corrections may create a potential accumulation window to acquire high-potential businesses at more sustainable valuations before the next growth cycle begins. This will also create opportunities for the investors to make strategic long term investment allocations in the smallcap space.
Smallcaps vs Nifty
Small-caps are generally associated with higher volatility compared to large-caps. However, data indicates that despite the higher standard deviation, SIP investments in the Nifty Smallcap 250 have delivered superior long-term returns, generating a CAGR of 17% since September 2016. In comparison, SIP returns from the Nifty 50 stood at 12% over the same period, highlighting the stronger growth potential of the small-cap segment over the long term.
The Nifty Smallcap 250 has also outperformed the Nifty 50 over the three- and five-year periods, delivering CAGRs of 21% and 22%, respectively, compared with 13% for the Nifty 50 across both time frames.
“The better long-term return delivered by the smallcaps reinforces the importance of staying invested through cycles rather than attempting to time the market,” Chugh added.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)