Looking Back 2025: Small-Cap Stocks Stumble As Gold, Silver Take The Lead

India’s once‑red‑hot small‑cap stocks have emerged as one of the weakest performers of 2025, sharply contrasting with the stellar run seen in precious metals such as gold and silver. 

The BSE SmallCap index has underperformed nearly every major global asset class this year, reflecting a decisive shift in investor sentiment away from riskier equities towards perceived safe havens.

After two back‑to‑back blockbuster years, India’s small‑cap segment has lost significant ground in 2025. The BSE SmallCap index is down more than 11 per cent in dollar terms so far this year, marking its steepest annual decline in three years, revealed an analysis by Bloomberg.

This reversal follows a surge of over 47 per cent in 2023 and a further 26 per cent rally in 2024, when retail participation and liquidity were abundant.

By comparison, India’s frontline indices have delivered only modest gains in 2025. Both the Sensex and the Nifty have risen by around 5 per cent each, underscoring how sharply small‑caps have lagged even within domestic equities, reported Moneycontrol.

Why small‑caps struggled in 2025

Several factors have converged to weigh on the small‑cap universe. Elevated valuations left little room for disappointment, while earnings growth failed to keep pace with expectations. Thin liquidity amplified price swings, making the segment particularly vulnerable when sentiment turned cautious.

The sell‑off also coincided with a weakening rupee, uncertainty surrounding India’s trade negotiations with the US, and sustained foreign portfolio outflows. Together, these factors triggered a broader risk‑off reaction in the market.

Adding to the pressure was a crowded initial public offering pipeline, which diverted incremental liquidity towards new listings and large‑cap stocks. In a global environment marked by risk aversion, investors increasingly preferred stability over speculative growth, leaving small‑caps on the sidelines.

Damage runs deep across the index

The breadth of the correction highlights the depth of the pain in the segment. Nearly 90 per cent of stocks in the BSE SmallCap index are trading below their 52‑week highs, the analysis revealed. About 10 per cent of constituents have fallen between 50 and 90 per cent from their peaks, while another 81 per cent are down 10-50 per cent.

Notably, this weakness has persisted even as large‑cap indices touched record highs, reinforcing concerns that the recovery in small‑caps may take longer.

Market participants do not expect a swift turnaround. Experts say the challenges facing small‑caps - stretched balance sheets, uneven earnings visibility and selective liquidity - could continue to weigh on the segment well into 2026.

Beyond India, a handful of other assets also disappointed investors in 2025. The Philippines’ PSEi index declined more than 9 per cent, while Bitcoin slipped over 5 per cent. India’s BSE MidCap index and Indonesia’s Jakarta Composite also ended the year in negative territory, down 4 per cent and 0.4 per cent, respectively.

Precious metals shine amid global uncertainty

While small‑caps struggled, precious metals dominated global performance tables in 2025. Gold and silver emerged as the standout asset classes as escalating geopolitical tensions and expectations of further interest‑rate cuts boosted demand for safe havens.

Silver surged an extraordinary 142 per cent during the year, while gold jumped 72 per cent, putting both metals on track for their strongest annual performance since 1979. The rally has been underpinned by aggressive central bank buying and steady inflows into exchange‑traded funds.

According to World Gold Council data, holdings in gold‑backed ETFs increased in every month of 2025 except May, highlighting sustained investor interest.

Political uncertainty also added momentum. US President Donald Trump’s push to reshape global trade and his criticism of the Federal Reserve’s independence further fuelled safe‑haven demand. Silver’s gains were amplified by speculative inflows and lingering supply disruptions following a historic short squeeze in October.

What lies ahead for gold and silver

Looking ahead, analysts expect the rally in precious metals to continue. Goldman Sachs has raised its 2026 year‑end gold price target to $4,900 per ounce, citing robust central bank demand and ETF inflows. Deutsche Bank has also upgraded its outlook, projecting gold prices at $4,450 per ounce in 2026.

For silver, experts believe strong industrial demand, limited supply and supportive macro trends could drive additional gains of 15–20 per cent next year.

Interestingly, the dominance of gold and silver in 2025 has overshadowed Bitcoin, which had led performance charts for much of the past decade. Historically, Bitcoin has underperformed only in 2014, 2018 and 2022. Its weakness in 2025 has been linked to heavy ETF redemptions and a renewed investor focus on artificial‑intelligence‑linked equities.