Investors continue to favor small‑cap mutual funds even as markets stay volatile. Mirae Asset’s small‑cap fund reached the Rs 5,000 crore AUM milestone within 18 months of launch, attracting strong inflows.
Varun Goel, senior fund manager at Mirae Asset, said the firm’s bottom‑up stock picking helped build a differentiated portfolio during a period of earnings slowdown, tariff uncertainty and Middle East tensions.
After a sharp correction, many small‑cap stocks now trade at lower prices. Earnings are improving and valuations are becoming more reasonable, which could signal a better phase for the segment. The Nifty Smallcap 250 index has risen about 15% in the last six months, outperforming the Nifty 50.
Anil Rego of Right Horizons explained that the correction removed excesses, creating good buying opportunities. Since March 2026, when global uncertainties eased, investor sentiment improved and earnings recovered, setting the stage for outperformance.
Managers caution that not all small‑cap stocks will rally. They expect a 5‑8% correction still possible, but markets have bottomed. They advise selective investing rather than a broad‑based allocation.
Goel and Rego emphasize disciplined selection: focusing on fundamentals, healthy balance sheets and sustainable business models, rather than chasing short‑term momentum.
Trideep Bhattacharya of Edelweiss Mutual Fund echoes this view, saying active managers are buying fundamentally strong small‑cap businesses at attractive valuations and staying selective.
Goel predicts a stronger earnings cycle for FY27, highlighting positive themes in capital goods (power transmission, renewable energy, data centres), financials (brokerages, exchanges, asset managers) and healthcare (hospitals, diagnostics). High valuations risk has moderated, and a FY27 earnings bounce‑back should lift the category and attract flows. Retail investors should diversify or pick strong companies, as the next gains will likely come from stock‑specific performance rather than a broad rally.