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Study shows nearly half of small-cap stocks are 40% below highs: What it means for your portfolioAbakkus Mutual Fund finds half of India’s small-cap stocks are 40% below highs. Small-caps grew 5.3x since 2019, with higher returns and volatility.By Anshul  February 17, 2026, 3:09:20 PM IST (Published)3 Min ReadAbout half of India’s small-cap stocks are currently trading nearly 40% below their all-time highs, a recent internal study by Abakkus Mutual Fund shows, highlighting how the recent market correction has altered valuations in the broader market segment.

The study examined companies with market capitalisation between ₹2,000 crore and ₹34,700 crore and found that a significant portion of this universe has seen sharp drawdowns from peak levels. For retail investors, such corrections typically translate into lower entry prices—but also come with higher volatility and risk.

Small-caps’ growing role in portfolios

Data cited in the study show that small-caps have expanded rapidly within India’s equity market over the past six years. Between calendar year 2019 and calendar year 2025, the segment’s total market capitalisation rose from ₹16 trillion to ₹83 trillion, marking a 5.3-fold increase.

In comparison, large-caps grew 2.55 times and mid-caps 3.89 times during the same period.

As a result, small-caps’ share in India’s total listed market capitalisation increased from 11% in 2019 to 19% in 2025. For individual investors building diversified equity portfolios, this expansion means small-caps now represent a more meaningful slice of the overall market opportunity set.

Returns versus volatility

Historically, small-caps have delivered higher long-term returns than large-caps, but with sharper swings. The study compared systematic investment plan (SIP) returns in the Nifty Smallcap 250 and the Nifty 50 from September 1, 2016 to January 31, 2026.

Over this period, SIP investments in the Nifty Smallcap 250 generated a compound annual growth rate (CAGR) of 17%, compared with 12% for the Nifty 50. On rolling three-year and five-year bases, the small-cap index delivered CAGRs of 21% and 22%, respectively, versus 13% for the Nifty 50.

However, the study also noted that small-caps exhibit higher standard deviation, underscoring their greater price volatility. For personal finance investors, this reinforces the need to align exposure with risk appetite and investment horizon.

Access to emerging themes

Small-cap stocks often provide exposure to emerging sectors that remain relatively underrepresented in large-cap indices. These include aerospace and defence, pharmaceuticals and biotechnology, electronics manufacturing services, electric vehicles and batteries, AI-led services, renewables, medical devices, travel and tourism, and auto components.

Vaibhav Chugh, CEO of Abakkus Mutual Fund, said that the current correction has improved the risk–reward profile for a meaningful portion of companies within the ₹2,000 crore to ₹34,700 crore market capitalisation bracket. He added that investors who stay invested through market cycles, rather than attempting to time entries and exits, may benefit from long-term compounding.

The findings are based on internal research using industry data as of December 31, 2025.Continue ReadingNote To ReadersDisclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers should consult certified experts before making any investment decisions.Tagsmutual fundsSmall Cap Stocks