New Delhi, Feb. 25 -- In the Netflix thriller Squid Game, a group of people sign up to play and win a fortune, only to find themselves trapped in a bloodbath. A similar game may be unfolding in India's small- and mid-cap stocks space, where investors who bet on instant riches may struggle to exit free-falling low-float stocks.

Blinded by the returns of previous years, small investors rushed headlong into these stocks directly and through equity schemes, ignoring warnings from the market regulator. Prices and valuations soared, particularly of stocks with inadequate "free float"-the portion of shares available for public trading. Even after a steep fall, their valuations remain high, and if the slide continues as expected, investors may f...