Significant number of Small-Cap Stocks Are Trading Below their All-Time Highs; offers window of strategic allocation: Abakkus Internal Research
A recent study by Abakkus Mutual Fund cited that nearly 50% of small-cap stocks (with market cap between Rs 2000 crore and Rs 34,700 crore) are currently trading ~40% below their all-time-high levels. 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 small - cap space.
Growing constituency of small-cap in the equity market cap universe
Between CY2019 and CY2025, market capitalization of small-caps has increased from INR 16 trillion to INR 83 trillion, expanding its value by 5.30x. Small-caps 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.
“With nearly half of the stocks of the small cap universe (between Rs 2000 crore and Rs 34,700 crore market cap) trading below ~40% of their peak, investors have an opportunity to accumulate fundamentally strong businesses at sustainable valuations before the next growth cycle unfolds. A meaningful portion of companies in the Rs 2,000 crore to Rs 34,700 crore market capitalisation bracket are now available at improved risk-reward levels. Most importantly, exposure to sunrise industries and varied sectors that are difficult to access in the large-cap space, are majorly available in the small-cap category,” said, Vaibhav Chugh, CEO, Abakkus Mutual Fund.
Small-caps 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.
Performance comparative: Nifty Smallcap 250 versus Nifty 50
Small-caps are typically associated with higher volatility, compared to large-caps. However, the study shows that despite higher standard deviation, Nifty Smallcap 250 SIP returns has delivered superior long-term growth with CAGR of 17% in comparison to the Nifty 50 SIP returns of 12%—since September 2016.
(Disclaimer: For Monthly SIP Returns, it is assumed that the investments are made on first day of the month, beginning from 1st September 2016 to 31st January 2026.)
The Nifty Smallcap 250 index beats the Nifty 50 index on the three-year and five-year periods too, recording CAGR of 21% and 22% versus the latter’s 13% for both intervals.
“The better long-term return delivered by the small-caps reinforces the importance of staying invested through cycles rather than attempting to time the market,” said, Mr. Vaibhav Chugh.
All schemes under Abakkus Mutual Fund follow the in-house MEETS framework, which focuses on Management pedigree and track record, Earnings quality and the ability of companies to multiply profits, Events/Trends that affect or disrupt operations, Timing of investment at reasonable pricing and Structural aspects like size of the opportunity and competitive positioning.
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