India Small Cap Stocks Forecast: AI Beats the Nifty 50 by 4.95%

Executive Summary

The purpose of this India Small Cap stocks forecast report is to present the results of the live forecast performance evaluation of long positions for the India Small Cap stocks package by the I Know First AI Algorithm. The following results were observed when the predictability filter was applied. The evaluation period is from 1st April 2024 to 13th May 2025. The corresponding returns distribution of stock signal filters for this package is shown below:

The India Small Cap Stocks Forecast Report Highlights:

  • The highest average return is 5.76% for the All Signals on a 3-month time horizon.
  • The average return across all horizon groups is positive.

About the I Know First Algorithm

The I Know First self-learning algorithm analyzes, models, and predicts the stock market. The algorithm is based on Artificial Intelligence (AI) and Machine Learning (ML) and incorporates elements of Artificial Neural Networks and Genetic Algorithms.

The system outputs the predicted trend as a number, positive or negative, along with a wave chart that predicts how the waves will overlap the trend. This helps the trader to decide which direction to trade, at what point to enter the trade, and when to exit. Since the model is 100% empirical, the results are based only on factual data, thereby avoiding any biases or emotions that may accompany human-derived assumptions.

The human factor is only involved in building the mathematical framework and providing the initial set of inputs and outputs to the system. The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. Predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions.

Our algorithm provides two independent indicators for each asset – Signal and Predictability.

The Signal is the predicted strength and direction of the movement of the asset. Measured from -inf to +inf.

Predictability indicates our confidence in that result. It is a Pearson correlation coefficient between past algorithmic performance and actual market movement. Measured from -1 to 1.

You can find a detailed description of our heatmap here.

The Stock Market Forecast Performance Evaluation Method

We perform evaluations on the individual forecast level. It means that we calculate what would be the return of each forecast we have issued for each horizon in the testing period. Then, we take the average of those results by strategy and forecast horizon.

For example, to evaluate the performance of our 1-month forecasts, we calculate the return of each trade by using this formula:

This simulates a client purchasing the asset based on our prediction and selling it exactly 1 month in the future.

We iterate this calculation for all trading days in the analyzed period and average the results.

Note that this evaluation does not take a set portfolio and follow it. This is a different evaluation method at the individual forecast level.

The Hit Ratio Method

The hit ratio helps us to identify the accuracy of our algorithm’s predictions.

Using our Daily Forecast asset filtering, we predict the direction of the movement of different assets. Our predictions are then compared against the actual movements of these assets within the same time horizon.

The hit ratio is then calculated as follows:

For instance, a 90% hit ratio for a predictability filter with a top 10 signal filter would imply that the algorithm correctly predicted the price movements of 9 out of 10 assets within this particular set of assets.

India Small Cap Stocks Performance Evaluation – Overview

In this report, we conduct testing of long positions for India Small Cap Stocks Forecast that I Know First covers by its algorithmic forecast. The period for evaluation and testing is from April 1st, 2024 to May 13th, 2025. During this period, we were providing our clients with daily forecasts in time horizons spanning from 3 days to 3 months which we evaluate in this report.

(Table 1: Average Returns Per Time Horizon for the India Small Cap Stocks Package)

As can be seen in the table above, our algorithm provided positive returns for most of the time horizons. The Nifty 50 benchmark is outperformed in most of the time horizons.

(Figure 1: Average Returns Per Time Horizon Short Term for the India Small Cap Stocks Package)
(Figure 2: Average Returns Per Time Horizon Long Term for the India Small Cap Stocks Package)

From the above charts, it is evident that as the forecasting horizon expands, the average returns tend to become higher. For the 3-month time horizon, the All Signals group significantly outperformed the benchmark index – by more than 7.1 times resulting in an average return of 5.76% versus the Nifty 50 average return of 0.81%. In the 14-day period, the AI Algorithm was able to generate the highest return of 0.82% for the All Signals which exceeds the Nifty 50 index by 0.44%.

India Small Cap Stocks: Conclusion

This report looked at the live performance forecast of I Know First data for the India Small Cap Stocks Package from April 1th, 2024 to May 13th, 2025. Data from Figures 1 and 2 above shows I Know First was able to generate a return that exceeded the Nifty return by 4.95% in 3 months. In the 14-day period, the All Signals return is 0.82% that exceeds the Nifty 50 index by 0.44%.