Small-cap stocks: Nearly half of the small-cap universe is currently trading well below its historical highs, offering investors a potential opportunity to make calibrated long-term allocations, according to a recent study by Abakkus Mutual Fund.
The research highlighted that nearly 50% of small-cap stocks, with market capitalisation ranging between ₹2,000 crore and ₹34,700 crore, are trading around 40% below their all-time highs following recent market corrections.
Just in 2026 YTD, Nifty Smallcap index has lost over 3% as against a 1.4% decline in the benchmark Nifty 50. Over three-year and five-year horizons, the small-cap index also outperformed, recording 21% and 22% CAGR, respectively, versus 13% for the Nifty 50 during both periods.
Commenting on the findings, Vaibhav Chugh, CEO, Abakkus Mutual Fund, said, “With nearly half of the stocks of the small-cap universe trading below around 40% of their peak, investors have an opportunity to accumulate fundamentally strong businesses at sustainable valuations before the next growth cycle unfolds”.
He added that a meaningful number of companies in this market-cap bracket are now available at improved risk–reward levels.
Small-caps gain prominence
The report further also underscored the growing importance of small-caps in India’s equity market capitalisation universe. Between CY2019 and CY2025, the aggregate market capitalisation of small-cap stocks surged from ₹16 lakh crore to ₹83 lakh crore, representing a 5.30x expansion.
In comparison, large-cap market capitalisation increased 2.55x, while mid-caps grew 3.89x over the same period.
As a result, the share of small-caps in India’s total equity market capitalisation rose from 11% in CY2019 to 19% in CY2025, reflecting a steady broadening of the segment’s footprint within the market. The study attributed this expansion to the increasing representation of emerging businesses and niche sectors that are often absent from large-cap indices.
Should you invest in small-caps?
Accordig to Abakkus Mutual Fund, small-cap stocks offer exposure to several sunrise industries that are shaping India’s long-term growth trajectory. These include Aerospace and Defence, Pharmaceuticals and Biotechnology, Electronics Manufacturing Services, EVs and Batteries, AI-led services, Renewables, Medical Devices, Travel and Tourism, and Auto Components. Many of these themes, the study noted, remain underrepresented in the large-cap space.
“The better long-term return delivered by small-caps reinforces the importance of staying invested through cycles rather than attempting to time the market,” Chugh highlighted.
Despite higher volatility, the performance data presented in the report showed that small-caps have rewarded patient investors over extended periods. Since September 2016, SIP investments in the Nifty Smallcap 250 index delivered a CAGR of 17%, compared with 12% for the Nifty 50.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
