60% of top 1,000 stocks trading in red this year; smallcaps among worst hit

About 595 of the top 1,000 stocks are in the red year to date, led by a small-cap rout; experts say an earnings revival and better results are key for a broad-based rally

The benchmark equity indices may be hovering within touching distance of their record highs as the year draws to a close, but beneath the surface the market tells a far less comforting story. Nearly 60 per cent, or 595, of the top 1,000 listed stocks have delivered negative returns so far in 2025, with losses running as deep as 70 per cent. 

The erosion of wealth at the stock level has been driven largely by a sharp correction in smallcap shares. While the Sensex sits just 0.9 per cent below the all-time intraday high scaled in December and the Nifty 50 is a mere 0.7 per cent shy of its intraday trading peak, the divergence widens further down the market-cap ladder. The Nifty Midcap 100 is 1.4 per cent off its highs, but the Nifty Smallcap 100 is 10.2 per cent below its record. 

Amid weak smallcap returns, retail investors have pared back their holdings and redirected capital towards initial public offerings and alternative assets such as gold. Part of the selling pressure has also been attributed to the growing popularity of futures and options (F&O) trading. 

“Retail investors and domestic smallcap funds form a large part of the investor base in smallcap stocks. This year’s market revival has not been broad-based. Retail portfolios were going nowhere even as headline indices moved higher, prompting investors to sell holdings and shift money to IPOs, attracted by listing-day gains,” said U R Bhat, co-founder of Alphaniti Fintech.

 

Bhat added that the slowdown in corporate profit growth in the September quarter last year made elevated valuations increasingly hard to defend. Even after the recent correction, the Nifty Smallcap 100 trades at a price-to-earnings multiple of 24.6 based on one-year forward earnings, well above its 10-year average of 18.3. The Nifty Smallcap 250 trades at 25.2 times forward earnings, compared with a decade-long average of 18.7. 

A revival in earnings will be critical to restoring investor confidence in smallcap stocks. “Economic growth and policy measures such as GST rationalisation and potential RBI rate cuts must translate into stronger corporate results. Only then will markets witness a genuinely broad-based rally. A return of foreign portfolio investors as net buyers and a resolution of trade tensions between the US and India could also provide a fillip to market sentiment,” Bhat said. 

Others argue that the selloff has already created pockets of value beyond the smallcap indices and that retail investors could make a comeback next year. 

“Smallcap indices do not fully capture the extent of the rout in some stocks. The rally in gold is unlikely to be repeated. But investors must ensure that businesses have tangible and durable profits and that valuations offer comfort. They should avoid stocks trading at more than 2-2.5 times the price-to-earnings-to-growth (PEG) ratio,” said G Chokkalingam, founder of Equinomics.