Yes, small cap stocks do pose a higher risk to investors. The reasons for the same are as follows:
Unsteady Business model: Small cap companies are relatively newer entrants in the industry which means the business is unsteady and relies on a lot of external factors. Eg. An economic downturn for a company with high debt can pave the way for bankruptcy.
Access to new capital: The above factors also mean difficult access to capital, leading to higher interest payments.
Low Liquidity: Small cap stocks are less liquid than their larger counterparts. This means negligible institutional presence, less research, etc.
That said, small-cap stocks in India can also give you lucrative returns. So, if you do decide to invest in the stocks of small-cap companies, make sure to do your due research about the company before making your investment. You should also diversify your investments to reduce risk.