How Did India’s Small-Cap Market Value Surge 5X in Just 7 Years?
Click to start listening
Synopsis
Discover the incredible growth of India's small-cap market, which has seen a fivefold increase in value over seven years. This report highlights the impressive CAGR, rising corporate profits, and the importance of quality investments in this thriving sector.
Key Takeaways
- India's small-cap market capitalisation has increased fivefold in seven years.
- Small caps achieved a CAGR of 27.6%, outperforming large and mid-cap stocks.
- The contribution of small-cap companies to total market capitalisation rose by 1.4 times.
- Corporate profits from small caps increased by 2.5 times over four years.
- Investors should prioritize quality to maximize returns.
Mumbai, June 18 (NationPress) The small-cap sector in India has achieved a remarkable fivefold increase in market capitalisation over the last seven calendar years, according to a report released on Wednesday.
The findings from Bajaj Finserv AMC reveal that the market capitalisation of small-cap companies escalated from Rs 17 lakh crore in 2017 to Rs 92 lakh crore by the close of 2024, achieving a significant Compound Annual Growth Rate (CAGR) of 27.6 percent.
In contrast, large-cap stocks experienced a CAGR of just 14.5 percent, while mid-cap stocks grew at 21.6 percent during the same timeframe.
This data underscores the superior performance of small-cap stocks and their increasing significance within the Indian stock market.
Moreover, the report indicates that the contribution of small-cap companies to the overall market capitalisation has risen by 1.4 times over the last three years.
Additionally, their share of corporate profits has surged by 2.5 times in the past four years, showcasing enhanced business performance and growing investor interest.
Even with a price correction observed in the latter half of FY25, numerous small-cap stocks continue to present attractive opportunities, as noted in the report.
As of April 2025, a majority of small-cap stocks were still trading below their 52-week peaks, creating an opportune moment for long-term investors to acquire quality stocks at appealing valuations.
Interestingly, while the Nifty Smallcap index only increased by 4 percent since FY24, the segment's Profit After Tax (PAT) saw an impressive growth of 38 percent.
Profits climbed from Rs 21,669 crore in FY24 to Rs 29,941 crore in FY25, with 74 percent of the top 250 small-cap companies reporting a double-digit Return On Capital Employed (ROCE).
However, the study emphasizes the necessity of prioritizing quality. It found that the Nifty Smallcap 250 Quality 50 TRI index has consistently outperformed the broader Nifty Smallcap 250 TRI index in 14 of the last 19 financial years.
In fact, this quality-focused index has provided higher returns than all other indices in nine financial years since FY10.
In addition to superior returns, the small-cap quality index has demonstrated greater stability, facing less volatility than even large caps during certain years and exhibiting more resilience than the broader small-cap index in 17 of the last 19 financial years, as stated in the report.
Point of View
I affirm that the remarkable growth in India's small-cap market underscores the evolving landscape of our economy. This trend not only highlights the resilience of smaller companies but also points to an increasing investor confidence in India’s potential. Our commitment at NationPress is to provide insights that empower our readers to make informed investment decisions.
NationPress
18/06/2025
Frequently Asked Questions
What caused the surge in India's small-cap market?
The surge can be attributed to a robust Compound Annual Growth Rate (CAGR) of 27.6% over the last seven years, reflecting strong business performance and increasing investor interest.
How do small-cap stocks compare to large and mid-cap stocks?
Small-cap stocks have significantly outperformed large-cap stocks, which saw a CAGR of 14.5%, and mid-cap stocks at 21.6% during the same period.
What is the outlook for small-cap stocks in FY25?
Despite recent price corrections, many small-cap stocks remain undervalued, offering long-term investors a chance to acquire quality stocks at reasonable prices.
Why is quality important in small-cap investing?
Focusing on quality is crucial, as evidenced by the Nifty Smallcap 250 Quality 50 TRI index outperforming broader indices in many years, indicating better stability and returns.
What trends can we expect in the small-cap market?
With a growing share of corporate profits and consistent demand, the small-cap market is likely to remain a significant player in the Indian stock market landscape.
