The equity market rout visible in the month of January has been far more prominent in the small-cap space compared with the Indian headline indices. The BSE Smallcap index has underperformed the benchmark indices, with a 9% decline on a month-to-date basis. This is more than double the 4% loss that Sensex has recorded so far in January.
This is particularly hard for retail investors who are generally among the biggest shareholders in the small-cap segment. Amid the bloodbath in the small-cap space, investors have cumulatively lost nearly ₹5.6 lakh crore.
Meanwhile, among 1300-odd companies part of the BSE Smallcap index, around 500 have lost 10% or more in January alone, and nearly 1050 are trading in the red, signalling the extent of the pain in the small-cap space.
Widespread risk-off positioning and cautious participation were visible in the Indian stock market, which is being weighed down by concerns over global trade and geopolitical developments, along with continued foreign institutional selling.
Lack of an India-US trade deal and rising geopolitical uncertainty following US President Donald Trump’s tariff threat on the EU over Greenland has shifted investor focus to precious metals in lieu of equities. Furthermore, a mixed earnings season has also weighed on investor sentiment.
Over 400 small-cap stocks down 10-30%
According to data from Capitaline, 483 small-cap stocks have crashed over 10%, with Balu Forge emerging as the worst loser with a massive 34% decline as of January 22.
Balu Forge, part of Ashish Kacholia’s stock portfolio, has seen a fall from ₹604.45 at the end of December to ₹397.9 as of the last closing price amid income tax raids at the company premises. Barring January 13, Balu Forge shares have slumped in all trading sessions this month and are now trading at levels seen in July 2024.
Shares of Kiri Industries, Systematix Group and Woth Investment are down 33% each so far this year.
Tejas Network, whose shares have slumped to 52-week lows, has lost 28% this year and is among the worst-performing small-cap stocks of 2026. The Tata group company recently posted a consolidated net loss of ₹196.55 crore in the third quarter of FY26 as against a profit of ₹165.67 crore a year ago, dampening investor sentiment in the counter.
Godfrey Phillips, another small-cap laggard, has seen a sharp 25% slump following the excise duty hike by the government from next month onward. Newgen Software shares have crashed 23% this month as investors appeared disappointed with the company’s December-quarter performance.
Allied Blenders, Landmark Cars, Sapphire Foods, Sigachi Industries, Motisons Jewellers, Ramco Systems and GTPL Hathaway are among the top losers from the small-cap space.
Are small-caps a good buy now?
Valuations, despite this correction, remain meaningfully above historical averages, said N. Aruna Giri, CEO of TrustLine Holdings.
Before this correction, the small-cap index was trading at around 28–30x trailing earnings. Post the fall, valuations have moderated to about 25–26x, but this is still a huge premium to long-term averages.
So at a broader market level, small and mid caps continue to look expensive, and it would be naïve to rule out more pain in the space, said the expert. However, he believes that for truly bottom-up and selective investors, many compelling opportunities are emerging across small and mid-caps, provided one is extremely choosy.
“This is not a universal buy-on-dips market, nor is it a market to completely stay out of. It is a market that rewards a selective bottom-up stock-specific approach,” he opined.
Meanwhile, G Chokkalingam, Founder and MD at Equionomics Research, told Mint earlier this week that weakness in mid and small-cap names could continue till March. However, if somebody wants to create wealth in the next one to two years, they should take advantage of this carnage, he opined.
“It will be a little riskier. But substantial wealth can be created in the next one to two years by those who buy till March,” he said.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
