Nifty Smallcap 100 Index PE Near 1-Year Low; Below 5-Year Long-Term Average!

The Nifty Smallcap 100 Index represents the small-cap segment of the Indian financial market, comprising 100 actively traded stocks listed on the National Stock Exchange (NSE). It is calculated using the free-float market capitalisation method, where the index level reflects the total free-float market value of all constituent stocks relative to a base market capitalisation.

This index serves multiple purposes, including benchmarking fund portfolios, the launch of index funds, Exchange-Traded Funds (ETFs), and structured financial products.

Recent Performance: A Period of Underperformance

The Nifty Smallcap 100 Index has witnessed a notable decline, underperforming the broader market:

• It has fallen nearly 18% from its September 2024 peak.
• In February 2025, the index dropped by 6.54%, lagging behind the Nifty 50.
• On March 3, 2025, during the first trading session of the month, the Nifty Smallcap 100 Index declined by 0.27% (provisional basis).
• Market breadth remained weak, with only 36 stocks advancing, while 64 stocks ended in the red.

Valuation Perspective: Analysing the PE Ratio

As of February 28, 2025, the Price-to-Earnings (PE) ratio of the Nifty Smallcap 100 Index stood at 25.2, marking its lowest level in the past 1, 3, and 6 months.

• It is also near the lower end of the one-year PE range.
• The 2-year average PE stands at 26.67, while the 5-year average PE is 28.13, indicating the current valuation is below these long-term averages.

Historical March Performance: A Balanced Track Record

An analysis of March month returns for the Nifty Smallcap 100 Index over the last 10 years reveals an equal probability of positive and negative returns.

• In 5 out of 10 instances, the index delivered negative returns.
• In the remaining 5 instances, the index registered gains.
• The most notable double-digit gains were:
  • 11.97% in March 2016
  • 12.44% in March 2019
• The steepest decline occurred in March 2020, when the index plunged by 36.66%, coinciding with the global market turmoil during the onset of the pandemic.

Conclusion

The Nifty Smallcap 100 Index has been in a phase of correction, underperforming broader indices in recent months. Its valuation is at a multi-month low, and historically, March returns have been evenly split between gains and losses. While past performance does not dictate future outcomes, historical trends and valuation metrics provide useful insights into its current positioning within the market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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