Market Cap Of Smallcap Stocks Jump 5 Times In 7 Years To Rs 92 Lakh Crore

India's small-cap stocks have shown impressive growth in recent years. From 2017 to the end of 2024, the market capitalisation of the small-cap segment jumped from ₹17 lakh crore to ₹92 lakh crore, a fivefold increase, noted Bajaj Finserv AMC.

This represents a Compound Annual Growth Rate (CAGR) of 27.6%, outperforming mid-caps (21.6%) and large-caps (14.5%) during the same period.

Rising Market and Profit Contribution:

Over the last three years, small-cap stocks have grown in significance, increasing their share in overall market capitalisation by 1.4 times. Their contribution to total corporate profits has also surged 2.5 times in just four years, showing that these smaller companies are becoming more influential and profitable.

'The second half of FY25 saw a correction in small-cap stock prices, creating an opportunity for investors to buy strong small-cap companies at more attractive valuations. By April 2025, most small-cap stocks were still trading below their 52-week highs, even though the segment's Profit After Tax (PAT) rose sharply, up 38% from ₹21,669 crore in FY24 to ₹29,941 crore in FY25. This suggests that the true value of small-caps may be underappreciated by the market,' noted Bajaj Finserv AMC.

Around 74% of the top 250 small-cap companies reported double-digit Returns on Capital Employed (ROCE), showing solid business fundamentals. However, Bajaj Finserv AMC's report also cautions investors, mentioning that nearly half of the small-cap companies from 2017 have now slipped into the micro-cap category, underlining the need for careful stock selection.

Small-Caps Lead IPO Boom:

Since 2020, there have been 196 small-cap IPOs, showing a lot of activity in this space. However, only four of these companies have grown enough to become mid-caps, and none have reached large-cap status. This shows how important it is to pick strong, high-quality companies when investing in small-caps says the Bajaj Finserv report.

High-Quality Small-Caps Deliver Better and More Stable Returns:

The Nifty Small Cap 250 Quality 50 TRI index, which tracks top-performing small-cap companies, has done better than the broader small-cap index in 14 out of the last 19 financial years. It also delivered the highest returns among all indices in nine financial years since FY10.

Surprisingly, in certain years, the Small Cap Quality Index showed lower volatility than even large-cap indices. In 17 out of the last 19 financial years, it has been more stable than the broader small-cap index, indicating it may offer strong returns with less risk during market swings.

Bajaj Finserv AMC concluded the study, noting that, "while India's small-cap segment offers strong growth potential, quality selection is key. Investors who focus on fundamentals and choose well-managed small-cap firms could benefit significantly in the long run."