Small-cap stocks: A recent study by Abakkus Mutual Fund found that about half of the small-cap universe is currently trading significantly below its historical highs, potentially providing investors with an opportunity to make measured long-term allocations.
The study found that after recent market declines, almost half of small-cap equities, having market capitalizations between ₹2,000 crore and ₹34,700 crore, are currently trading about 40% below their peak values.
The benchmark Nifty 50 has declined 1.4%, while the Nifty Smallcap index has lost more than 3% so far in 2026. The small-cap index also did better over three and five-year spans, with CAGRs of 21% and 22%, respectively, compared to the Nifty 50’s 13% for both periods.
Investors have the chance to make fundamental gains because about half of the small-cap universe’s stocks are currently trading below about 40% of their peak. In reaction to the results, Vaibhav Chugh, CEO of Abakkus Mutual Fund, said, “solid firms at sustainable valuations before the next development cycle emerges.”
“A significant number of companies in this market-cap category are now available at enhanced risk-reward levels,” he continued.
Small-caps become more well-known
Additionally, the report emphasized the increasing significance of small-caps in India’s equities market capitalization universe. The total market capitalization of small-cap stocks increased by 5.30 times, from ₹16 lakh crore to ₹83 lakh crore, between CY2019 and CY2025.
In contrast, the market capitalization of large-cap companies climbed 2.55 times during the same period, whereas that of mid-cap companies grew 3.89 times.
Consequently, small-caps’ proportion of India’s overall stock market capitalization increased from 11% in CY2019 to 19% in CY2025, indicating a consistent expansion of the segment’s market share. The study ascribed this growth to the growing presence of specialist industries and nascent companies, which are frequently missing from large-cap indices.
Is it wise to invest in small-cap stocks?
Small-cap equities provide exposure to a number of emerging businesses that are influencing India’s long-term economic trajectory, claims Abakkus Mutual Fund. These include travel and tourism, medical devices, electronics manufacturing services, biotechnology and pharmaceuticals, EVs and batteries, AI-led services, renewable energy, aerospace and defense, and auto components. According to the report, a lot of these themes are still not well-represented in the large-cap market.
“Small-caps have a superior long-term return, which emphasizes the value of investing through cycles rather than trying to time the market,” Chugh said.
The report’s performance statistics demonstrated that small-cap stocks have rewarded patient investors over long periods of time, despite increased volatility. SIP investments in the Nifty Smallcap 250 index have produced a CAGR of 17% since September 2016, while the Nifty 50 has produced a CAGR of 12%.
