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Small-Cap Stocks Crash 40% from Peak: Golden Opportunity or Value Trap, Detail Inside

Share Market Update

Vikram Singh

February 21, 2026 at 9:38 AM IST · 3 min read

Small-cap stocks have always been the center of discussion amid stock market turmoil because, while they can surge at rocketing speeds during bullish periods, they also suffer the most significant losses during market downturns. Having slipped from its historic peak in September 2024, the small-cap sector is currently undergoing a significant price and time correction.

According to a recent and shocking study by Abacus Mutual Fund, shares of nearly half of small-cap companies have fallen by nearly 40 percent from their all-time highs, raising the question among investors: whether this decline should be viewed as a golden opportunity or whether it would be wiser to sit back.

Market Cap Increased Fivefold in Five Years

SBI Small Cap Fund

If we take a closer look at the data from the past few years, the growth rate achieved by small-cap companies has become a significant example for large- and mid-cap companies. Between 2019 and 2025, the total market capitalization of small-cap companies has leaped from approximately ₹16 lakh crore to over ₹83 lakh crore.

The biggest result of this meteoric rise is that the share of small-cap companies in the entire Indian stock market, which was previously only 11 percent, has now increased to nearly 19 percent, indicating that Indian investors are now fully prepared to take risks and select future multi-bagger companies.

A Year and a Half of Slowdown

Experts at Mirae Asset Sharekhan clearly believe that small-cap stocks have not seen their previous momentum in the past 18 months, and that the price decline has been accompanied by a significant correction in time.

The price decline that began in October-November has certainly weakened market sentiment, but the actual earnings figures of companies remain quite encouraging. Currently, small-cap stocks are neither too cheap nor too expensive, but rather, they are in a zone where valuations seem reasonable, leading experts to recommend gradually starting investments in this sector.

TATA Share Market

Don’t Invest in a Hurry

New investors often make the mistake of investing all their money at once after a significant market decline, but experts believe that investing should always be disciplined and phased. According to Stocktick Capital, large-cap stocks provide stability to your portfolio, and mid-cap stocks support growth, while small-cap stocks boost the portfolio’s overall returns.

The key to success in small-cap investments is to have patience of 7 to 10 years. Buying through a Systematic Investment Plan (SIP) instead of a lump sum investment is considered the safest strategy, as it reduces the risk of market fluctuations.

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