Small caps registered a growth of 5X in market cap over the past 7 calendar years: Bajaj Finserv AMC

Pune: A study by Bajaj Finserv AMC states that India’s small-cap segment has delivered remarkable growth over the past seven calendar years, with market capitalisation surging fivefold from ₹17 lakh crore in 2017 to ₹92 lakh crore by the end of 2024 — reflecting a robust compound annual growth rate (CAGR) of 27.6%. In comparison, large-cap and mid-cap segments recorded CAGR of 14.5% and 21.6%, respectively, during the same period.

Further, the 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.

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

The study 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. Interestingly, 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.