Small-caps soar: Market cap jumps 5-fold to ₹92 lakh crore in 7 years

India’s small-cap segment has delivered “remarkable growth” over the past seven calendar years, with its market capitalisation zooming five-fold from ₹17 lakh crore in 2017 to ₹92 lakh crore by the end of 2024, a report by Bajaj Finserv AMC showed.

The segment recorded a robust compound annual growth rate (CAGR) of 27.6% between 2017 to 2024, outperforming the large-cap and mid-cap segments. In comparison, large-cap and mid-cap space recorded CAGR of 14.5% and 21.6%, respectively, during the same period.

The Bajaj Finserv AMC study states that the contribution of small-caps to the overall market capitalisation has grown 1.4 times over the last three years. At the same time, their contribution to corporate profits has surged 2.5 times in the past four years.

“This trend reflects the increasing prominence of the small-cap segment and the broader range of investment opportunities it now presents,” the report noted.

As per the report, second half of FY25 witnessed a correction in small caps, creating an opportunity to accumulate quality small caps at better valuation. As of April 2025, most small caps continue to trade below their 52-week highs, making the segment appealing from a valuation standpoint.

“While the small-cap index gained only 4% since FY24, profit after tax (PAT) grew by 38%, highlighting the segment’s unrealised value,” it added.

Despite the price correction, small-cap profits grew to ₹29,941 crore in FY25 from ₹21,669 crore in FY24. Adding to it, 74% of the top 250 small-cap companies reported a double digit returns on capital employed (ROCE), indicating strong underlying fundamentals.

The study, however, reflects on the importance of selecting quality small-cap stocks to avoid potential pitfalls, revealing that nearly 50% of small-cap companies from 2017 have declined into the micro-cap category. It pointed out that small caps have been at the forefront of IPO activity, with 196 listings since 2020. However, only four have transitioned to the mid-cap status, and none to large-caps, emphasising the need for careful selection.

Bajaj Finserv AMC revealed that the Nifty Small Cap 250 Quality 50 TRI has outperformed the Nifty Small Cap 250 TRI in 14 of the last 19 financial years. Overall, the quality index delivered higher returns than all other indices in nine financial years from FY10.

Adding to it, the Small Cap Quality index has exhibited lower standard deviation than large caps in certain years. The study further highlights that the Nifty Small Cap 250 Quality 50 TRI has withstood volatility much better than the Nifty Small Cap 250 TRI in 17 out of the past 19 financial years, underscoring its resilience during periods of market fluctuation.

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