India's small-cap stocks have significantly underperformed in 2025, experiencing an 11% decline in dollar terms, a stark contrast to their strong performance in previous years. This downturn is attributed to elevated valuations, lagging earnings growth, thin liquidity, and a weakening rupee. Factors like trade negotiation uncertainties with the US and foreign portfolio outflows have contributed to a risk-off sentiment. Meanwhile, gold and silver have seen a stellar run, and frontline indices like Sensex and Nifty have posted modest gains.