New Delhi, Dec. 21 -- Small-cap stocks have witnessed one of their toughest phases in years in 2025, with broad-based selling, valuation compression and fading risk appetite weighing heavily on the segment.

After delivering stellar returns over the past two years, the small-caps have seen a sharp reversal, leaving many retail investors cautious and sentiment visibly bruised. However, experts believe that the space will likely recover in 2026.

"The probability of a cyclical revival in 2026 is high if earnings in the broader market stabilise, domestic SIP flows remain sticky and global rates peak out-thereby lowering the risk-free anchor. However, leadership within small caps is likely to be narrower: expect the quality-led small/mid segm...