The broader small-cap segment has been under significant pressure in 2025, with 89 per cent of the stocks in the Nifty Smallcap 100 index delivering negative returns on a year-to-date (YTD) basis. The index itself has seen a sharp decline, losing 20 per cent YTD, significantly underperforming the benchmark Nifty50, which has fallen 3 per cent in the same period.

The downtrend continued in today’s trading session as the Nifty Smallcap 100 fell over 2 per cent to touch an intraday low of 15,044.4. Meanwhile, the Nifty50 slipped 204 points, or nearly 1 per cent, to 22,725.45 during intraday trade.

What’s behind the stock market fall?

The Indian stock market has been grappling with heavy selling pressure this year, driven by multiple factors, including relentless foreign capital outflows, weak corporate earnings, and the rupee hitting record lows against the dollar. Investor sentiment has been further dampened by fresh tariffs announced by U.S. President Donald Trump, raising fears of a potential trade war that could slow global economic growth and stoke inflationary pressures.

According to Vipul Bhowar, Senior Director – Listed Investments, Waterfield Advisors, recent shifts in global policies, particularly from the U.S., have injected uncertainty into Foreign Institutional Investors’ (FIIs) strategies. Rising U.S. bond yields have made U.S. assets more attractive, prompting FIIs to reduce their exposure to Indian equities in favor of perceived safer returns abroad.

“Compounding this trend is a noticeable slowdown in corporate sales growth within India, further fueling the exodus of capital from Indian equities. This deceleration casts a long shadow over the enthusiasm for stocks, prompting a wave of sustained selling. Additionally, the prevailing high valuations in the Indian stock market have added to the caution among investors. With prices soaring, many are reassessing their positions, reluctant to dive into a market that appears overheated and potentially risky. This combination of factors creates a complex landscape where the once-vibrant interest in Indian equities is now laced with hesitation and caution,” Bhowar explained.

Stock Performance: Majority in the Red

In the Nifty Smallcap 100 index, only 11 stocks have managed to stay in positive territory, while 89 stocks have delivered negative returns so far in 2025.

Kaynes Technology was the top loser, down over 45 percent followed by Sterling and Wilson RE, which plummeted over 42 percent.

Meanwhile, Swan Energy, Data Patterns, Jupiter Wagons, KEC International, Apar Industries, Natco Pharma, Tejas Networks, BEML, CESC, CAMS, NCC, ITI, CDSL, and Titagarh Rail also lost over 30 percent each.

However, Navin Fluorine, Redington, Zensar Tech, Chambal Fertilisers, Narayana Hrudayalaya, CreditAccess Grameen, Aarti Industries, Castrol India, Karur Vysya Bank, Manappuram Finance, and Aavas Financiers were in the green.

What Should Investors Do?

Market experts had previously cautioned that broader market valuations were reaching unsustainable levels, which has now led to the expected correction in small-cap stocks.

Abhishek Jaiswal, Fund Manager at Finavenue, advises investors to take a stock-specific approach when considering small-cap investments. 

“The latest quarterly data reaffirms that small-cap stocks have outperformed large caps in market momentum and fundamental metrics. However, small caps tend to exhibit sharp movements in both directions, making valuation and liquidity key considerations. A well-balanced portfolio with a strategic allocation to both large and small caps ensures sustainable, less volatile returns.”

He further suggests that investors closely track government policies, corporate earnings, quarterly results, and major global economic developments, as these factors play a crucial role in shaping market trends. “The foundation of wealth creation lies in disciplined entry valuations and a well-defined investment horizon,” he added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.