Small caps crash every January–March — then bounce 35%

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Motilal Oswal reveals that the Nifty Smallcap 100 has fallen an average 24% in this exact window nine times since 2009 — and 2026 is already the tenth. But the famous 64% recovery figure hides a critical truth.

By S. JHA

Mumbai, March 16, 2026 — If you are watching your small-cap portfolio bleed right now, you are not alone — and you may not be unlucky. You may simply be on schedule.

Motilal Oswal Financial Services has published data showing that between January and March, the Nifty Smallcap 100 has fallen by an average of 24% on nine separate occasions since 2009. The pattern has now repeated itself in 2026, making this the tenth such drawdown in sixteen years.

“January to March is a peculiar window for small cap investors,” Motilal Oswal noted in a thread on X. It added that “since 2009, the Nifty Smallcap 100 has drawn down during this period 9 times out of 16, with an average fall of 24% each time. And now, 2026 is already the tenth.”

Why does this keep happening?

Two forces converge in this window every year. The first is institutional. As India’s financial year closes in March, mutual funds, institutions and large investors face liquidity pressure from advance tax payments and balance sheet adjustments. “That forces selling — even when fundamentals do not justify it,” argued the brokerage firm.

The second force is retail. “When volatility picks up, retail investors pull back and mutual fund inflows slow,’ it added. Motilal Oswal points to March 2025, when equity mutual fund inflows fell to an eleven-month low, as a recent example.

Small caps absorb the worst of both forces simultaneously. The Nifty Smallcap 100 represents a small share of NSE’s total free-float market cap but a disproportionately large share of daily traded value — meaning their order books are thin and buyers are scarce precisely when sellers are most active. “Think of it as a narrow exit with far too many people trying to leave at once,” Motilal Oswal observed.

The 64% recovery story — and its fine print

The historical data also shows that once April arrives, liquidity pressures ease and small caps have bounced back by an average of 64% from their bottoms. “That number, however, demands scrutiny,” stressed Oswal.

Two years are doing most of the heavy lifting: 2009, when small caps surged 176% after the global financial crisis, and 2020, when they rose 154% after the COVID crash. “Remove those two once-in-a-decade events, and the average recovery drops to 35.1% — still meaningful, but a far more grounded baseline for 2026 investors to work with,” it added.

There is one more mathematical reality worth keeping in mind. “A fall and a recovery of the same percentage do not cancel out. A portfolio that drops 24% needs to rise 31.6% just to break even — not 24%,” explained the institution.

The pattern is real. The recovery, historically, has also been real. But as Motilal Oswal’s own data makes clear, the difference between 64% and 35% is the difference between a crisis and a correction — and 2026 has not yet declared which one it is.

(Disclaimer: This article makes no recommendation for any kind of trades in the stock markets.)