Analyzing NIFTY Smallcap Indices: A Deep Dive into Historical Returns

_{Published on: 01 Apr, 2025 14:35}

In the below subsection, we will do a detailed performance analysis of NIFTY Small Cap Indexes which will include their return and risk analysis since 2005. This analysis will also help mutual fund investors in the risk-return profile of small-cap mutual funds as there is a dearth of data related to small-cap mutual funds which goes back up to 2005.   

The NIFTY Smallcap indices—comprising the NIFTY Smallcap 50, NIFTY Smallcap 100, and NIFTY Smallcap 250—are essential tools for tracking the performance of small-cap companies in the Indian stock market. These indices focus on smaller companies, which are known for their high growth potential but also come with higher volatility and risk compared to larger, more established companies.

1. NIFTY Smallcap 50: This index tracks the 50 smallest companies by market capitalization in the small-cap category. It provides insights into the performance of smaller, high-potential companies, though these companies tend to be riskier due to their size and market sensitivity.

2. NIFTY Smallcap 100: This index expands the coverage to the 100 smallest companies, offering a broader view of the small-cap market. It helps investors gauge the performance of a larger group of small companies, balancing risk and opportunity.

3. NIFTY Smallcap 250: The most comprehensive of the three, this index tracks the 250 smallest companies by market capitalization. It provides the widest perspective on the small-cap market, reflecting the performance of a diverse range of small companies.

1. Growth Opportunities: Small-cap companies are often in the early stages of growth, making them attractive for investors seeking high returns. The NIFTY Smallcap indices help identify these high-growth opportunities, especially during bullish market phases.

2. Diversification: Investing in small-cap indices allows investors to diversify their portfolios beyond large-cap and mid-cap stocks. This can be particularly beneficial when small-cap companies outperform during certain market cycles.

3. Market Sentiment: The performance of small-cap indices is often seen as an indicator of broader market sentiment. When these indices perform well, it typically signals that investors are willing to take on higher risk for potentially higher rewards.

4. Volatility and Risk: Small-cap stocks are known for their higher volatility, and the NIFTY Smallcap indices reflect this characteristic. They are useful for understanding the risk-return dynamics of the small-cap segment.

While small-cap indices offer exciting growth opportunities, they also come with significant risks that investors should be aware of:

1. Higher Volatility: Small-cap stocks tend to experience larger price swings compared to large-cap stocks. This volatility can lead to significant gains but also substantial losses, especially during market downturns.

2. Liquidity Risk: Small-cap stocks often have lower trading volumes, making it harder to buy or sell shares without affecting the stock price. This can be a challenge for investors looking to enter or exit positions quickly.

3. Business Risk: Small companies are more vulnerable to economic downturns, competition, and operational challenges. They may lack the financial stability and resources of larger companies, making them riskier investments.

4. Market Sensitivity: Small-cap stocks are more sensitive to changes in market sentiment and macroeconomic factors. Negative news or economic uncertainty can disproportionately impact small-cap companies.

5. Limited Track Record: Many small-cap companies are relatively new or have limited operating histories, making it harder to assess their long-term potential and stability.

In the below subsection, we will do a detailed performance analysis of each index which will include their return and risk analysis since 2005. This analysis will also help mutual fund investors in the risk-return profile of small-cap mutual funds as there is a dearth of data related to small-cap mutual funds which goes back up to 2005.   

 

The below shows NIFTY Small Cap 50 Index returns since 2006. The index has a volatile history when we look at its yearly returns trend. in-long term 

 

• 1-Year Return

  • Extreme volatility: Ranges from -58.85% (2009) to 137.99% (2010).
  • Average return of 18.45% with a high standard deviation of 52.26%, showing significant unpredictability.
  • 11 positive years, 8 negative out of 19, a 58% chance of gains but with big swings.
  • Median of 8.17% is far below the mean, indicating extreme positive outliers skew the average.

• 3-Year CAGR

  • More stable than 1-year: Peaks at 32.96% (2023), bottoms at -23.03% (2020).
  • Average of 7.99% with a standard deviation of 15.32%, still volatile but less erratic.
  • 12 positive periods, 5 negative out of 17, improving odds of gains (71%).
  • Median of 9.91% aligns closer to the mean, suggesting a more balanced distribution.

• 5-Year CAGR

  • Further smoothing: High of 34.68% (2025), low of -10.89% (2020).
  • Average of 8.13% with a standard deviation of 11.18%, volatility continues to decline.
  • 13 positive periods, 2 negative out of 15, a strong 87% positive rate.
  • Median of 5.66% lags the mean, showing a few high performers boost the average.

• 7-Year CAGR

  • Remarkably consistent: Ranges from 14.85% (2016) to -0.0% (2013).
  • Average of 6.67% with a standard deviation of 4.3%, significantly reduced risk.
  • All 13 periods positive, a 100% success rate, no losses recorded.
  • Median of 6.9% is near the mean, reflecting steady performance.

• 10-Year CAGR

  • Solid long-term growth: High of 13.32% (2024), low of -3.13% (2020).
  • Average of 7.52% with a standard deviation of 4.71%, low volatility.
  • 9 positive periods, 1 negative out of 10, a 90% positive rate.
  • Median of 8.6% exceeds the mean, suggesting the single negative pulls the average down.

• 15-Year CAGR

  • Steady and positive: Ranges from 13.83% (2024) to 3.5% (2023).
  • Average of 7.66% with a standard deviation of 3.84%, the lowest volatility.
  • All 5 periods positive, 100% reliability, though limited data points.
  • Median of 6.74% is slightly below the mean, indicating consistency.

 

• 1-Year Return

  • High volatility: Spans -55.7% (2009) to 137.94% (2010), mirroring the Small Cap 50’s extremes.
  • Average of 20.6% with a standard deviation of 48.33%, slightly less volatile than the 50.
  • 11 positive years, 8 negative out of 19, identical 58% positive rate to the 50.
  • Median of 9.99% beats the 50’s, suggesting fewer extreme lows temper the distribution.

• 3-Year CAGR

  • Stronger than the 50: Peaks at 40.01% (2023), dips to -16.99% (2020).
  • Average of 12.25% with a standard deviation of 15.78%, higher returns with similar volatility.
  • 14 positive periods, 3 negative out of 17, an 82% positive rate, better than the 50.
  • Median of 13.24% aligns well with the mean, showing robust consistency.

• 5-Year CAGR

  • Outperforms the 50: High of 36.38% (2025), low of -5.81% (2020).
  • Average of 12.45% with a standard deviation of 10.51%, higher returns, slightly less volatile.
  • 13 positive periods, 2 negative out of 15, matching the 50’s 87% positive rate.
  • Median of 11.02% is close to the mean, reflecting a balanced and strong performance.

• 7-Year CAGR

  • Exceptional consistency: Ranges from 20.04% (2016) to 3.38% (2013).
  • Average of 11.1% with a standard deviation of 4.63%, higher returns than the 50, low risk.
  • All 13 periods positive, 100% success rate, matching the 50’s reliability.
  • Median of 11.85% is near the mean, showcasing steady, superior growth.

• 10-Year CAGR

  • Robust long-term gains: High of 18.24% (2024), low of 1.88% (2020).
  • Average of 11.95% with a standard deviation of 4.79%, outperforms the 50 with low volatility.
  • All 10 periods positive, a perfect 100% rate, beating the 50’s single negative.
  • Median of 12.26% exceeds the mean, indicating consistent strength.

• 15-Year CAGR

  • Impressive long-term: Ranges from 18.55% (2024) to 8.68% (2023).
  • Average of 12.04% with a standard deviation of 3.89%, higher returns than the 50, minimal volatility.
  • All 5 periods positive, 100% reliability, matching the 50 but with a small sample.
  • Median of 11.13% is slightly below the mean, reflecting solid, dependable growth

 

Conclusion

• The Nifty Small Cap 50 offers a narrower, more volatile slice of the small-cap market, with lower average returns across all periods (e.g., 18.45% vs. 20.6% for 1-year, 7.66% vs. 12.04% for 15-year).
• The Nifty Small Cap 250, as a broader benchmark, delivers higher average returns, fewer negative periods (e.g., 3 vs. 5 at 3-year), and often tighter volatility, making it a preferred gauge for small-cap mutual funds in India.
• Both indices show that longer horizons (7+ years) eliminate losses and reduce risk, but the Small Cap 250 consistently outshines the 50, likely due to its wider diversification.