Over 50 per cent, or 660 stocks, from the BSE 1000 index recorded negative returns during CY25.
Illustration: Uttam Ghosh/Rediff
As calendar year 2025 (CY25) draws to a close, the smallcap index is set to report its worst performance in the past seven years, data shows.
Thus far in CY25, the BSE Smallcap index has slipped 7.5 per cent, recording its sharpest decline since CY18 when it had tanked 23.5 per cent. In CY19, the smallcap index had declined 6.8 per cent.
In comparison, the Nifty 50 (up 9.7 per cent) and BSE Sensex (up 8.4 per cent) have recorded positive returns in CY25, for the 10th straight year.
Most smallcap stocks, according to analysts, were richly valued in CY25 after their sharp run in the last two years when the smallcap index had zoomed 47.5 per cent in CY23, followed by 29.3 per cent surge in CY24.
The rally — amid rich valuations, tepid corporate earnings growth, and trade war fears — had seen analysts turn cautious as regards this segment.
Those at Bernstein, for instance, had cashed out from most of the smallcap stocks they held in their portfolio right at the start of the year.
‘We dismantled our small-and-midcap (SMID) portfolio in January 2025 following a strong performance in 2024, choosing to hold cash,” wrote Venugopal Garre, managing director, Bernstein, in a recent note.
‘Even after upgrading midcaps to ‘neutral’ mid-year, we refrained from adding any stock positions, reflecting a disciplined stance amid elevated valuations and uneven earnings visibility,’ Garre added.
Negative returns
Over 50 per cent, or 660 stocks, from the BSE 1000 index recorded negative returns during CY25.
The index measures the performance of 1000 of the largest and most liquid Indian companies within the BSE AllCap index and accounted for 94 per cent of the market capitalisation of the BSE listed companies.
Stocks of Ola Electric Mobility, Praj Industries, Tejas Networks, Sterling and Wilson Renewable Energy, KNR Constructions, Newgen Software, Route Mobile, and Whirlpool of India saw their price tank between 50 per cent and 62 per cent during CY25.
On an overall basis, the market’s showing in CY25 was varied with automobiles (domestic) and financials doing well across market-caps, ownership (private or public sector banks) and type (banks, capital markets, insurance, and non-banking financial companies or NBFCs) but most other sectors struggling.
PSU Banks, Metal, Auto, and Financial Services were the top sectors that gained between 15 per cent and 27 per cent during the year on the BSE while Realty and Information Technology indices slipped 14 per cent and 17 per cent, respectively, data shows.
Smallcap stocks’ outlook for 2026
The sharp fall in the smallcap stocks, analysts believe, have made valuations a bit more palatable.
Investors, they suggest, can start to buy the stocks on a dip from a long-term perspective.
The next two months, according to G Chokkalingam, founder and head of research at Equinomics Research, would be a good opportunity to buy select smallcap stocks at attractive prices as several stocks in this segment have corrected sharply and turned appealing buys.
“Apart from conducive macroeconomic factors and attractive valuations in many individual smallcap stocks, robust inflow of new retail investors into the markets also give us confidence in this segment,” Chokkalingam said.
“We suggest long-term investors to increase the allocation to equity asset allocation and allocate this incremental cash to quality small-and-midcap stocks in the January-March 2026 period,” Chokkalingam added.
At the index level, analysts at ICICI Securities expect the markets to deliver double-digit returns over the next 12 months.
‘We now value Nifty at 29,500, i.e. 21x P/E (price-to-earnings) on FY28E. Our corresponding target for Sensex is 98,500. Given more rational valuations in mid and smallcaps, and strong growth trajectory, we do expect these two segments to deliver strong returns in CY26,’ they wrote in a recent report.
Feature Presentation: Aslam Hunani/Rediff
