Mumbai: India’s small-cap segment has seen a fivefold rise in market capitalisation over the last seven calendar years, a new report said on Wednesday.
The data compiled by Bajaj Finserv AMC said that the market capitalisation of small-cap companies grew from Rs 17 lakh crore in 2017 to Rs 92 lakh crore by the end of 2024 — registering a strong Compound Annual Growth Rate (CAGR) of 27.6 per cent.
In comparison, large-cap stocks saw a CAGR of 14.5 per cent and mid-caps grew at 21.6 per cent during the same period. This highlights the outperformance of small caps and their growing importance in the Indian stock market.
The report also shows that the contribution of small-cap companies to the total market capitalisation has increased 1.4 times in the last three years. Their share in corporate profits has gone up 2.5 times in the past four years — reflecting their improved business performance and rising investor interest.
Despite a price correction in the second half of FY25, many small-cap stocks continue to offer value, the report said. As of April 2025, most small-cap stocks were still trading below their 52-week highs, creating a favourable environment for long-term investors to accumulate quality stocks at reasonable valuations, it added.
Interestingly, while the Nifty Smallcap index gained only 4 per cent since FY24, the segment’s Profit After Tax (PAT) grew by 38 per cent. Profits rose from Rs 21,669 crore in FY24 to Rs 29,941 crore in FY25. Additionally, 74 per cent of the top 250 small-cap companies reported a double-digit Return On Capital Employed (ROCE).
However, the study highlights the importance of focussing on quality. It found that the Nifty Smallcap 250 Quality 50 TRI index has outperformed the broader Nifty Smallcap 250 TRI index in 14 of the last 19 financial years.
In fact, this quality-focussed index delivered higher returns than all other indices in nine financial years since FY10. Apart from delivering better returns, the small-cap quality index has also shown better stability. It faced less volatility than even large caps in some years and was more resilient than the broader small-cap index in 17 of the last 19 financial years, the report stated.