New Delhi, Dec. 9 -- The Nifty Smallcap 100 index - now on the verge of slipping into correction territory - has sharply underperformed in the current calendar year. The index has fallen more than 9% on a year-to-date basis, dealing a significant blow to retail investors, who are among the biggest shareholders in these companies.

This year's profit taking comes on the heels of two back-to-back years of massive returns, as investors are worried about valuations running ahead of fundamentals. In the year 2024, the Nifty Smallcap 100 index rallied 24%, following a 56% rally seen in the index in 2023.

"Through 2024-25, the index rallied over 70%, far outpacing earnings growth, and traded at a premium to its 10-year average P/E. Once liquidi...