80% stocks in red! Bears still rule in Dalal Street's once-loved pocket even as Nifty surges

Despite the Nifty and Sensex showing positive trends in 2025, the SME sector is struggling, with nearly 80% of stocks trading in the red. This underperformance is attributed to high volatility, weak liquidity, and poor fundamentals, exacerbated by speculative trading. Experts advise caution and a research-driven approach, emphasizing fundamentally strong businesses for potential long-term opportunities.
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Gap widens between frontline and SME indices
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What is going wrong in SME universe?
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What's ahead
Even as India's benchmark indices recovered from the lows seen this year, there's one corner of Dalal Street that continues to bleed - the SME segment. Despite the Nifty and Sensex turning positive for calendar year 2025, the SME universe remains deep in the red, with the SME IPO Index still in the bear market.According to data from Ace Equity, as many as 333 SME stocks or nearly 80% names in this space are trading in red, 66% have dropped more than 10% and over 50% of the stocks fell over 20% in CY25 so far. This stark underperformance comes even as the broader market sentiment has improved amid resilient macro indicators, FPI inflows, and expectations of rate cuts.The divergence between frontline and SME counters is no accident. Analysts attribute the selloff in SME stocks to a combination of high volatility, weak liquidity, and poor fundamentals, often exacerbated by speculative trading and profit-booking in overvalued recent listings.While the headline Nifty gained just over 2% year-to-date, the Sensex has rebounded smartly since last year lows. However the BSE SME IPO Index has plunged over 20%. The index had earlier witnessed a meteoric rise in 2023 and early 2024, fuelled by a frenzy of retail participation and massive IPO oversubscriptions , many of which came from micro-cap, untested businesses.Among the top laggards this year are companies that were once investor favourites during the SME IPO boom of 2023–24. Stocks that surged 3x–4x post-listing have now corrected over 50% from their peaks, with several hitting lower circuits for weeks.The top 10 losers in 2025 so far have fallen anywhere between 50% and 70%. Many of these companies have either failed to scale their business or were richly valued without robust fundamentals. AA Plus Tradelink , and Radhika Jeweltech are among the worst hit, each shedding more than 60% of their value this year.A combination of structural and market-specific factors has contributed to the sharp decline of SME stocks in 2025. Many IPOs launched during the 2023–24 boom were heavily oversubscribed -- often 100 times or more -- driven by retail frenzy rather than fundamentals.However, once listed, several of these companies failed to deliver on earnings or scale their operations, leading to steep corrections.Compounding the problem is the absence of institutional participation, unlike mainboard IPOs, SME issues typically lack QIB or anchor support, making them vulnerable to volatility and price manipulation. Meanwhile, valuation fatigue set in as macro uncertainties like interest rate risks and inflation prompted investors to rotate capital from speculative microcaps to more stable large-cap names."The underperformance of SME stocks in 2025 stems from high volatility, low liquidity, weak fundamentals, external shocks, and cautious investor sentiment , despite a positive broader market," says Atul Parakh, CEO of Bigul.He cautions that while SME platforms do offer high-growth opportunities, chasing them broadly is risky. 'For most retail investors, the current environment favors caution over aggressive pursuit of SME stocks,' Parakh adds.Despite the rout, experts aren't writing off the SME space. They say SMEs face undue pressure from market swings, as investors prioritize stability in large-cap stocks during uncertain times. But this also creates long-term opportunities for selective buyers.Parakh advises a research-driven approach, focusing only on fundamentally strong businesses with clean promoter history and long-term growth visibility . 'Investors should maintain diversified exposure and avoid chasing momentum in low-quality names. The next leg of returns in SME stocks will come not from hype, but from earnings delivery and governance."Data inputs: Ritesh Presswala: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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