Microcap . The Deeper You Go

Friend asked over the weekend why we do not just push every rupee into microcap. "Smallcap did 41 percent. Microcap is even smaller. So it should do more."

Pulled up the four cap-curve cards on RupeeCase. Same backtest engine. Same fifty equal-weighted stocks (except Midcap which holds twenty). Same fortnightly rebalance. The only thing that changes is the universe you draw from.

Allcap (Nifty Total Market): CAGR 48.02 percent, max drawdown -22.70 percent, Sharpe 1.77.

Midcap (Nifty Midcap 150): CAGR 41.21 percent, max drawdown -24.87 percent, Sharpe 1.48.

Smallcap (Nifty Smallcap 250): CAGR 41.03 percent, max drawdown -22.35 percent, Sharpe 1.58.

Microcap (Nifty Microcap 250): CAGR 40.56 percent, max drawdown -26.44 percent, Sharpe 1.53.

Step down the cap curve. Return flattens. Drawdown widens.

Microcap gives back 0.47 percentage points of CAGR versus Smallcap, then asks for 4.09 percentage points more drawdown to deliver it. The risk-adjusted return (Sharpe 1.53 vs 1.58) moved the wrong way too. The deepest universe paid you in pain, not in alpha.

The honest framing: the cap curve is not a return ladder. It is a drawdown ladder dressed up as a return ladder.

Microcap is a real exposure with a real edge. But it is satellite, not core. Sized for the dip you can actually hold through, not the headline year that doubled the account. The 2023 print was +93 percent. The 2025 print was -7.3 percent. The CAGR assumes you stayed for both.

The deal in one line: the deeper you go, the less you get paid for it. So size for the depth, not the headline