India's Small Cap Story- Outperformance, Top Performing Funds, and Successful Stocks

India's small-cap market offers high growth but comes with volatility; investors should exercise caution and diversify.

May 5, 2024
8 mins read

In recent years, India's small-cap segment has garnered significant attention for its impressive performance and potential for substantial returns. This article explores the fascinating story of India's small-cap market, highlighting its outperformance, top-performing funds, and successful stocks. By delving into these key aspects, investors can gain valuable insights into this dynamic and rewarding investment landscape.

India's small cap stocks represent companies with relatively low market capitalization, typically ranking below the top 250 companies in terms of market value. These companies often exhibit higher growth potential but come with increased volatility and risks compared to large-cap stocks. However, over the years, small cap stocks in India have emerged as an attractive investment avenue, attracting investors seeking high-growth opportunities.

Understanding Small Cap Stocks

The classification of stocks into different categories, such as small-cap, mid-cap, and large-cap, is primarily based on market capitalization. Market capitalization refers to the total value of a company's outstanding shares in the stock market.

Small-cap stocks typically refer to companies with relatively small market capitalization. Although there is no standardized definition, small-cap stocks are generally associated with companies that have a lower market capitalization compared to mid-cap and large-cap companies. Small-cap companies have a market capitalisation of less than Rs 5,000 crore.

Small cap stocks refer to companies with a smaller market capitalization, which is calculated by multiplying the stock price by the total number of shares outstanding. These companies have a relatively smaller market value compared to large cap and mid cap stocks. While there is no strict definition for market capitalization ranges, small cap stocks generally fall within the lower end of the market cap spectrum.

One key characteristic of small cap stocks is their higher growth potential. These companies are often in the early stages of development, operating in niche sectors, or adopting innovative business models. Their smaller size allows them to be more agile and nimble in responding to market opportunities and capturing market share. As a result, small cap stocks may have greater room for expansion and growth compared to their larger counterparts.

Investing in small cap stocks requires a long-term perspective. While they may offer significant growth opportunities, it is important to recognize that the journey to success for small cap companies can be volatile and unpredictable. Small caps are generally more susceptible to market fluctuations and may experience higher price volatility. Their stocks may experience larger price swings compared to larger, more established companies.

India's Small Cap Outperformance in Recent Years

India's small cap stocks have shown exceptional performance in recent years, outpacing their large-cap counterparts. The small cap segment has delivered remarkable returns, driven by various factors such as favorable economic conditions, regulatory reforms, and increasing investor interest in high-growth companies. This outperformance has attracted both domestic and international investors looking to capitalize on India's vibrant small cap market.

Factors Driving Small Cap Performance

Small-cap stocks can be attractive to investors looking for diversification. With larger companies facing challenges such as increased regulation or market saturation, investors may turn to smaller companies in different sectors to balance their portfolios and potentially achieve higher returns.

Technological advancements and digital transformation have provided opportunities for small-cap companies to disrupt traditional industries and gain market share. Innovative startups and tech-driven enterprises are often categorized as small-cap, and their growth potential in emerging sectors like renewable energy, artificial intelligence, and biotechnology can attract investor interest.

Several factors contribute to the impressive performance of India's small-cap stocks. These include:

  • Economic Growth: India's robust economic growth provides a fertile ground for small-cap companies to thrive and expand their businesses.
  • Reforms and Policies: Government initiatives, such as ease of doing business reforms and policies promoting entrepreneurship, have facilitated the growth of small and medium-sized enterprises (SMEs).
  • Domestic Consumption: The rise in disposable income and consumption patterns of India's growing middle class has created a favorable environment for small-cap companies catering to domestic demand.
  • Technological Advancements: Innovation and technology-driven disruptions have opened new opportunities for small-cap companies to capitalize on emerging trends and disrupt traditional industries.

Top Performing Small Cap Mutual Funds

Investing in small-cap mutual funds provides a convenient way for investors to gain exposure to a diversified portfolio of small-cap stocks. Here are some of the top-performing small-cap mutual funds in India:

Successful Small Cap Stocks

Several small-cap stocks in India have demonstrated exceptional performance and have become success stories in their respective sectors. Some notable examples include:

HTML Table Generator
Sr No Company Industry
1 NESCO Ltd.  Services
 2  Thyrocare Technologies Ltd  Healthcare Services
 3 Delta Corp Ltd  Services 
 4  VST Industries Consumer Goods 
 5  Bajaj Consumer Care FMCG 
  • NESCO Ltd. is a company involved in various business segments. It licenses premises in IT park buildings and provides related services, including exhibitions and catering. The company operates Nesco IT Park, which offers leased office space to companies. It also manages the Bombay Exhibition Centre, providing infrastructure for exhibitions and events. Nesco Foods caters to banquets, exhibitions, and F&B services within its premises. Additionally, Nesco has a subsidiary called Indabrator, which manufactures surface preparation equipment in Gujarat.
  • Thyrocare Technologies Ltd., an India-based healthcare service provider, is renowned as one of the top small-cap stocks. The company operates a centralized processing laboratory (CPL) in Mumbai for esoteric tests. It also has regional processing laboratories in metro cities across India and other parts of Asia. Thyrocare Technologies Ltd. is a leading provider of diagnostic and imaging services in India, with a market capitalization of 3,553 CR.
  • Delta Corp Ltd. is an India-based holding company primarily involved in the casino gaming industry. Its operations span various locations, including Goa, Daman, Gurgaon, Sikkim, and Nepal. The company operates in three divisions: Casino Gaming Division, Online Skill Gaming Division, and Hospitality Division. Delta Corp Ltd. engages in casino gaming, hospitality, and online skill gaming through its subsidiaries.
  • VST Industries Ltd. is a public conglomerate company headquartered in Hyderabad. Established in 1930, the company is known for manufacturing and distributing cigarettes. Its current share price is Rs. 3195.80, and it boasts a market capitalization of 4,934 CR.
  • Bajaj Consumer Care Limited is an FMCG company primarily manufacturing hair oils and personal care products. The company operates in the Cosmetics, Toiletries, and Other Personal Care products segment. Bajaj Consumer Care owns the Nomarks brand in India.

Risks and Considerations

While India's small-cap market offers attractive growth opportunities, it is crucial for investors to be aware of the associated risks. Some key considerations include:

  • Volatility: Small-cap stocks are generally more volatile than large-cap stocks, which can lead to sharp price fluctuations.
  • Liquidity: Small-cap stocks may have lower trading volumes, making buying or selling shares at desired prices challenging.
  • Market Risk: The overall market conditions and economic factors can significantly impact small-cap stocks.
  • Due Diligence: Thorough research and analysis are essential when selecting individual small-cap stocks or mutual funds.

Investors should diversify their portfolios, consult with financial advisors, and align their investments with their long-term financial goals and risk appetite.


India's small-cap segment offers an exciting investment opportunity, showcasing impressive growth potential and outperformance in recent years. With a focus on careful research, diversification, and a long-term perspective, investors can tap into this dynamic market and potentially reap significant rewards. However, it is essential to understand the risks and undertake a thorough analysis before making investment decisions in small-cap stocks or mutual funds.

Inri, backed by Y Combinator, is an investment platform dedicated to NRIs & OCIs to invest in Indian markets. Inri is like Wealthfront for India, making investing in India fast and hassle-free.

None of the information provided in the article should be counted as investment advice. Please consult your financial advisor before investing.

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