The once-booming small-cap segment on Dalal Street has turned into a nightmare for retail investors in 2025, with numerous stocks plunging to multi-month lows amid widespread earnings disappointments and valuation concerns.
Small-Cap Bloodbath: Index Underperforms Significantly
The Nifty Smallcap 100 index has suffered a 6% decline in 2025, dramatically underperforming both the Nifty Midcap 100 and benchmark Nifty 50 indices, which have gained 5.20% and 9.70% respectively during the same period. If this downward trend continues through year-end, it will mark the index's first annual decline in two years and the second-largest drop since 2022, when it corrected by 14%.
This severe underperformance has prompted investors to significantly rebalance their portfolios, moving capital away from small-caps toward the relative safety of large-cap and mid-cap stocks.
Earnings Misses Trigger Downgrades
Domestic brokerage Motilal Oswal revealed alarming data about the small-cap segment's financial health. The firm reported that 40% of small-cap stocks under its coverage delivered numbers below estimates in Q2FY26, with overall earnings declining 5% year-over-year against their projection of 3% growth.
JM Financial corroborated these findings, noting that 32% of small-cap companies in their tracking universe missed expectations during the September quarter. This performance was notably worse than mid-caps and large-caps, where only 27% and 26% of companies respectively failed to meet estimates.
Top Losers: 40-60% Wealth Erosion
The carnage has been particularly brutal for several former market darlings. Forty-three constituents of the Nifty Smallcap 100 index have fallen between 20% and 60% in 2025 alone.
Tejas Networks emerged as the worst performer, crashing 60% to ₹480 per share, marking its first yearly decline in five years. Brainbees Solutions, which operates FirstCry, witnessed a similar fate with a 53.3% drop to ₹305, causing significant wealth erosion for IPO investors.
Other major casualties include Newgen Software, down 49% to ₹875, and Zen Technologies, which plummeted 43% to ₹1,395 after stellar performances in previous years.
Top 10 Small-Cap Laggards of 2025:
- Tejas Networks: 60% drop
- Brainbees Solutions: 53% drop
- Newgen Software: 49% drop
- Zen Technologies: 43% drop
- Jupiter Wagons: 42% drop
- Ramkrishna Forgings: 42% drop
- KEC International: 42% drop
- Sonata Software: 40% drop
- Cyient: 40% drop
- Natco Pharma: 39% drop
The selloff has been broad-based, affecting multiple sectors. IT stocks including Cyient, Sonata Software, and Birlasoft tumbled 40%, 39%, and 32% respectively. Electronics manufacturing services (EMS) stocks such as PG Electroplast and Kaynes Technologies dropped 42% and 22%.
Other notable declines included KEC International, Natco Pharma, Swan Corp, HFCL, NCC, Action Construction, BLS International, CG Consumer, Tata Teleservices, and several others falling between 20% and 40%.
Investor Sentiment Shifts Dramatically
After five years of sustained gains, Jupiter Wagons saw its shares weaken by 42% to ₹291.60, while Ramkrishna Forgings fell 42% to ₹519.90 and is poised to record its first yearly loss since 2019.
The combination of poor earnings performance and previously rich valuations has led to widespread EPS downgrades across the small-cap universe, making these stocks particularly vulnerable to even minor corrections in the Indian stock market.
This dramatic shift in fortune for the small-cap segment serves as a stark reminder of the higher risks associated with these investments, especially when market conditions turn unfavorable and earnings growth fails to justify premium valuations.
