The recent carnage in small-cap stocks has left investors rattled. The Nifty Small Cap 100 index plunged nearly 10 percent last week, its steepest drop since the chaos of March 2020. In less than two months, it has shed 18 percent of its value, now standing 22 percent below its September peak. The sell-off has been relentless, driven by earnings downgrades, stretched valuations, weak sentiment, and growing global uncertainties.
As panic spreads, many investors are questioning whether to continue their systematic investment plans (SIPs) in small-cap funds. The knee-jerk reaction is to halt contributions, fearing deeper losses. But history suggests that could be a costly mistake.
Small-cap investing may have been a test of patience but this time, it may be different. An analysis by Motilal Oswal underscores this—even if you commit to a SIP for 7 years in small and mid-cap stocks, it would be a steep 5.8 percent loss.
Furthermore, the near-term outlook remains uncertain. With small caps trading at a forward 12-month PE of 24.5x—far above their 10-year average of 16x—analysts warn that more correction may be on the horizon. Some advise shifting to large-cap stocks, at least until stability returns.
With uncertainty looming, it may no longer be about patience but about protecting capital. Investors who piled into small caps during the bull run are now facing the reality of steep drawdowns. The question is no longer whether to stop SIPs but whether the small-cap boom has already run its course.
Zen Tech (Rs 972, -10%)
Shares extend losses on soft Q3.
Bull Case: The company expects inflows of R 800 crore to materialise during Q4-FY26, providing revenue visibility beyond FY25. Additionally, the company is expanding its portfolio across various simulators, highlighted by the recent acquisition of ARIPL, a naval simulator firm, as well as MoUs and partnerships with other companies for air-based simulation solutions.
Bear Case: While the drone manufacturer's Q3 earnings showcased growth on an on-year basis, sharp weakness was felt on a sequential basis, largely due to delays in booking certain contracts, which also acted as a dampener for investors. Brokerage firm Motilal Oswal Financial Services pointed to Zen Tech's underperformance in comparison to broader indices on concerns related to growth visibility, order inflows, and acquisition plans.
ABB India ( Rs 5,136, -2.2%)
Shares fell following the company’s post-result earnings call.
Bull Case: ABB India remains optimistic about its growth prospects in the country, with consumption, investment, and premiumisation emerging as key trends to watch in 2025. The current order backlog, it added, provides strong visibility for the year ahead.
Bear Case: The company suggested that it could witness growth moderation before the next cycle of growth starts. Consumption, investment and premiumisation are key factors to watch out for in 2025, it added.
Persistent Systems (Rs 5,796, 4.7%)
JPMorgan shares "outperform" rating, shares target at Rs 7,200
Bull case: Persistent Systems is well-positioned for strong growth, with a projected 21% revenue increase and 29% earnings CAGR (FY25-27), driven by operational efficiency, margin expansion, and robust digital transformation demand. The recent stock dip presents a compelling buying opportunity, further supported by the company’s strong leadership and execution.
Bear case: Macroeconomic uncertainties, potential slowdowns in IT spending, and competitive pressures could hinder Persistent Systems' aggressive growth targets. Any delays in margin expansion strategies, such as reducing subcontracting costs, may limit profitability, making the current valuation appear stretched.
(With inputs from Lovisha and Zoya)
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