Small-Cap Stocks on Sale: Why 2026 May Be the Year to Invest in Nifty Smallcap 100

After a strong two-year rally, small-cap stocks have been under pressure in 2025, but market experts now believe this weakness may actually be setting up a favourable entry point for long-term investors. The Nifty Smallcap 100 index has fallen more than 9% year-to-date, turning sentiment negative among retail investors, who hold a large share of ownership in these companies.

What's Behind the Decline of Small-Cap Stocks?

The sharp decline in small-cap stocks is the result of several factors that have built up over time. One major reason is stretched valuations, with the Nifty Smallcap 100 trading at levels that analysts considered unsustainable. Earnings performance has also been weak, with small caps lagging sharply behind large-cap companies in the September quarter (Q2 FY26). Foreign investor sentiment has also played a key role, with FIIs continuing to trim their exposure to India’s broader markets.

Why This May Be the Right Time to Buy Small-Caps

Despite the recent pain, analysts believe the correction has created a healthier environment for long-term investors. The risk-reward profile appears far better today compared to the peak of the rally in 2024. The possibility of a cyclical revival in 2026 is strong if broader earnings improve, domestic SIP flows stay robust and global interest rates stabilise or decline.

• Valuations have cooled significantly, making small-cap stocks more attractive to long-term investors.
• The froth of the past year has now settled, and the segment is healthier today than during last year’s euphoric phase.
• Improving macro stability, easing inflation, and consistent domestic flows may help support the segment.

Technical View of Nifty Smallcap 100

The Nifty Smallcap 100 index is attempting to stabilise near the 17,000 support area, hinting at emerging buying interest and the possibility of a short-term base. A sustained weekly close above the 20-week EMA would be an early sign of strength, while a breakout above the 50-week EMA could confirm a trend reversal.

Remember, this is perspective, not prediction. Do your own research and consider your own risk tolerance before making any investment decisions. The views and recommendations made above are those of individual analysts or broking companies, and not of this publication. We advise investors to check with certified experts before making any investment decisions.