BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off

The BSE SME IPO index has entered bear territory, dropping over 20% amid a broader market correction driven by foreign investor outflows, slowing growth, and regulatory tightening. Several small-cap stocks, including retail favorites, have plunged up to 72% from their 52-week highs, signaling a shift back to large-cap stocks. Analysts warn of stretched valuations and expect further corrections in the small- and mid-cap segments through 2025.

CONTENTS:

• BSE SME IPO Index Enters Bear Market Amid Broader Equity Correction
• Small-Cap Rout: 22 Multibagger Stocks Tumble Up to 43% Amid Market Selloff
• Retail-Favorite Small-Cap Stocks Face Sharp Decline as Market Shifts to Large Caps

BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off

BSE SME IPO Index Enters Bear Market Amid Broader Equity Correction

BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off The BSE SME IPO index has officially entered bear territory, having dropped over 20% from its recent peak of 122,298 on January 6, 2025, to its current level of 95,553. This decline follows years of strong gains, including a 147% surge in 2024, a 96% rise in 2023, and a remarkable 1,103% increase in 2021.

Market analysts attribute this downturn to a broader correction in Indian equities, driven by sustained foreign investor outflows, slowing economic growth, weaker corporate earnings, and global tariff concerns. Regulatory tightening has also played a role, as authorities took steps to curb excessive speculation following an extended period of rapid price increases.

So far in 2025, more than 20 SME IPOs have debuted, but 10 are currently trading below their issue price, with five others seeing little movement. In 2024, 247 SMEs went public, yet nearly a third are now below their listing price, while many others have delivered minimal returns. Even those that saw impressive first-day gains have largely erased their profits.

Experts caution investors to focus on solid fundamentals, reasonable valuations, and companies with strong management and sustainable business models. While post-correction opportunities exist, the SME IPO market remains volatile, requiring careful assessment before investing.

Small-Cap Rout: 22 Multibagger Stocks Tumble Up to 43% Amid Market Selloff

BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off Once high-flying small-cap stocks are now struggling as a sustained market selloff has driven 22 stocks from the Nifty Smallcap 250 index down by 20% to 43% in just a month. A combination of valuation concerns, weaker-than-expected December quarter earnings, and ongoing global tariff tensions has led to significant corrections, impacting retail investor portfolios.

Small-Cap Slide Deepens

BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off The downturn, which initially started as profit booking in October, has intensified as companies failed to meet market expectations, prompting a reevaluation of stock valuations. The ongoing selloff has been further exacerbated by foreign portfolio investors (FPIs) exiting Indian equities at an accelerated pace due to global economic uncertainty and signs of a slowdown in domestic growth.

Leading the list of declining stocks, Newgen Software plunged 43.40%, dropping from ₹1,626 to ₹1,020, after reporting weak quarterly earnings that led brokerage firms to lower their target prices. Despite delivering multibagger returns of 118% in 2024 and a staggering 333% in 2023, the stock has fallen 40% year-to-date in 2025.

Other small-cap IT firms, including Netweb Technologies and Sonata Software, have also taken a hit, losing 36% and 23%, respectively, over the past month. Kaynes Technology, which had previously seen strong gains, declined 39% after the company slashed its FY25 revenue guidance.

Railway & Capital Goods Stocks Hit Hard

Railway-related stocks such as Jupiter Wagons (-36%), Ramkrishna Forgings (-30%), and Titagarh Rail Systems (-21.4%) have faced sharp declines, while capital goods companies, including BEML and Triveni Turbine, also experienced substantial losses. Lower capital expenditure allocations in the Union Budget 2025 have further dampened sentiment in this sector.

Valuations Remain a Concern

BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off : Despite the correction, market experts warn that small- and mid-cap valuations are still stretched. Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that large-cap stocks have outperformed the broader market. While the Nifty Midcap and Smallcap indices have fallen 8.6% and 11.3% YTD, the Nifty 50 is down only 1.52%.

He advises investors to focus on quality large-cap stocks in sectors like banking, IT, autos, pharma, and capital goods, as FPIs are likely to return when global conditions stabilize.

Looking Ahead: BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off

While these stocks have experienced sharp corrections, many of them still hold significant long-term gains. However, investors are urged to exercise caution and prioritize fundamentally strong businesses before making investment decisions.

Retail-Favorite Small-Cap Stocks Face Sharp Decline as Market Shifts to Large Caps

BSE SME IPO Index Enters Bear Market as Small-Cap Stocks Face Sharp Sell-Off: Several small-cap stocks favored by retail investors have seen a sharp decline, with some losing up to 72% of their market value from their 52-week highs. Companies such as Delta Corp, GVK Power & Infrastructure, Coffee Day Enterprises, Subex, Orient Green Power, and Easy Trip Planners have faced significant sell-offs, reflecting broader concerns about the small-cap market. Analysts suggest that the previous trend of small-cap outperformance is reversing, with a shift back to large-cap stocks expected.

According to Elara Securities, many investors had moved funds from large-cap stocks to smaller ones, but early signs now indicate a reversal in this trend. The firm advises reducing exposure to smaller stocks. GVK Power & Infrastructure, where retail investors held a 36.43% stake, has dropped 72% from its peak of ₹17, while Coffee Day Enterprises, Subex, Orient Green, and Easy Trip Planners have lost 51-67% from their highs.

Additional small-cap stocks, including Orient Paper & Industries, Rico Auto Industries, Dwarikesh Sugar Industries, Hindustan Construction Company, and Bajaj Hindusthan Sugar, have declined 40-50%. Others, such as Ujjivan Small Finance Bank, Patel Engineering, Reliance Industrial Infrastructure, Olectra Greentech, and Delta Corp, have seen 35-40% declines.

Nuvama Securities notes that small- and mid-cap stocks (SMID) are in a bearish phase due to slowing domestic growth, tightening liquidity, and high valuations. The brokerage compares the current downturn to past bear markets, where cyclical stocks such as industrials, real estate, NBFCs, and PSU banks saw corrections of over 50%. It warns that many small- and mid-cap stocks remain overvalued, making them susceptible to further declines amid weakening demand.

Mirae Asset Sharekhan also expects 2025 to be a challenging year for small- and mid-cap stocks, predicting further corrections in the segment.