Looking to invest in smallcaps in 2026? Five insightful predictions by 5 experts
After suffering their worst slump in seven years in 2025, India's smallcap stocks are heading into 2026 with cautious and yet polarising commentary. While large caps ended the year with respectable double-digit gains, smallcaps and microcaps sharply underperformed, forcing investors to rethink how and where they take risk next year. Here are five of India's top market experts offering a smallcap outlook for 2026.
Sunil Sharma, Chief Investment Strategist, Ambit Global Private Client
For Sunil Sharma, 2025 has been a year of sharp divergence across the market. Largecap investors are up 11% year-to-date, supported by improving fundamentals and earnings visibility. Nifty earnings are growing at 15.3% year-on-year, with revisions turning positive after November results, reinforcing Sharma's view that large caps are entering 2026 from a position of strength.
Midcaps, he argues, have also held up better than headline returns suggest. After delivering 44.6% in 2023 and 24.5% in 2024, midcaps have still managed 5-6% gains in 2025. With forward valuations moderating to around 27.8 times and earnings growth plus revisions running above 20%, Sharma believes fundamentals will dominate returns next year.
Smallcaps, however, remain the laggards. With –7% returns in smallcaps and –19% in microcaps, Sharma is wary of index-based exposure. Earnings growth and revisions have been weak, making broad participation risky. His outlook for 2026 is that investors should be selective, bottom-up investing through experienced fund managers. Across market caps, he expects active management to outperform passive strategies, as stock and sector dispersion widens.
V Srivatsa, Executive Vice President and Fund Manager, UTI AMC
V Srivatsa strikes a more cautious but balanced tone. He sees the earnings outlook for both midcaps and smallcaps improving, which should help stabilise returns after a difficult year. However, valuations remain the key constraint.
Mid- and smallcap indices continue to trade at a premium to largecaps, and Srivatsa expects this gap to matter in 2026. In his view, large caps are better placed to lead the recovery, given their valuation comfort and more predictable earnings. While smaller stocks may recover, leadership is likely to stay with companies offering scale, balance-sheet strength and earnings visibility.
Nilesh Shah, Managing Director, Kotak Mahindra AMC
For Nilesh Shah, the risk in smallcaps has not fully disappeared. While the sharp excesses of earlier years have eased, Shah believes froth still exists in select counters, where valuations assume earnings growth that may not materialise.
A deeper concern, he says, lies in ownership structure. Many smallcap stocks have limited free float, with shares concentrated in a few hands. This concentration has helped push valuations higher, but it also creates fragility.
Dinshaw Irani, CEO, Helios Mutual Fund
Dinshaw Irani offers a more constructive view on the outlook. He believes India's midcap and smallcap segments are starting to look attractive again, particularly on a growth-adjusted basis. According to Irani, the earnings downtrend that began around September last year appears to have bottomed out by mid-2024.
What surprised him most was the sharp rebound in mid- and smallcap earnings during the September quarter, even as sentiment remained weak and comparisons were favourable. This resilience, Irani argues, suggests that fundamentals are improving beneath the surface. While risks remain, he sees selective opportunities emerging as earnings regain momentum.
Trideep Bhattacharya, Fund Manager, Edelweiss AMC
Valuation discipline is central to the assessment by Trideep Bhattacharya. He notes that largecap valuations have cooled to near their 10-year average of about 20.5 times one-year forward earnings, making them relatively attractive.
Smallcaps and midcaps, by contrast, remain expensive by historical standards. Smallcaps trade at around 25.1 times forward earnings, well above their long-term average of 16.7 times, while midcaps are at 29.2 times compared with a historical norm of 23.1 times. Bhattacharya says that the worst froth has come off, but stresses that the segment is still not cheap, and investors should not mistake correction for value.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
Sunil Sharma, Chief Investment Strategist, Ambit Global Private Client
For Sunil Sharma, 2025 has been a year of sharp divergence across the market. Largecap investors are up 11% year-to-date, supported by improving fundamentals and earnings visibility. Nifty earnings are growing at 15.3% year-on-year, with revisions turning positive after November results, reinforcing Sharma's view that large caps are entering 2026 from a position of strength.
Midcaps, he argues, have also held up better than headline returns suggest. After delivering 44.6% in 2023 and 24.5% in 2024, midcaps have still managed 5-6% gains in 2025. With forward valuations moderating to around 27.8 times and earnings growth plus revisions running above 20%, Sharma believes fundamentals will dominate returns next year.
Smallcaps, however, remain the laggards. With –7% returns in smallcaps and –19% in microcaps, Sharma is wary of index-based exposure. Earnings growth and revisions have been weak, making broad participation risky. His outlook for 2026 is that investors should be selective, bottom-up investing through experienced fund managers. Across market caps, he expects active management to outperform passive strategies, as stock and sector dispersion widens.
V Srivatsa, Executive Vice President and Fund Manager, UTI AMC
V Srivatsa strikes a more cautious but balanced tone. He sees the earnings outlook for both midcaps and smallcaps improving, which should help stabilise returns after a difficult year. However, valuations remain the key constraint.
Mid- and smallcap indices continue to trade at a premium to largecaps, and Srivatsa expects this gap to matter in 2026. In his view, large caps are better placed to lead the recovery, given their valuation comfort and more predictable earnings. While smaller stocks may recover, leadership is likely to stay with companies offering scale, balance-sheet strength and earnings visibility.
Nilesh Shah, Managing Director, Kotak Mahindra AMC
For Nilesh Shah, the risk in smallcaps has not fully disappeared. While the sharp excesses of earlier years have eased, Shah believes froth still exists in select counters, where valuations assume earnings growth that may not materialise.
A deeper concern, he says, lies in ownership structure. Many smallcap stocks have limited free float, with shares concentrated in a few hands. This concentration has helped push valuations higher, but it also creates fragility.
Dinshaw Irani, CEO, Helios Mutual Fund
Dinshaw Irani offers a more constructive view on the outlook. He believes India's midcap and smallcap segments are starting to look attractive again, particularly on a growth-adjusted basis. According to Irani, the earnings downtrend that began around September last year appears to have bottomed out by mid-2024.
What surprised him most was the sharp rebound in mid- and smallcap earnings during the September quarter, even as sentiment remained weak and comparisons were favourable. This resilience, Irani argues, suggests that fundamentals are improving beneath the surface. While risks remain, he sees selective opportunities emerging as earnings regain momentum.
Trideep Bhattacharya, Fund Manager, Edelweiss AMC
Valuation discipline is central to the assessment by Trideep Bhattacharya. He notes that largecap valuations have cooled to near their 10-year average of about 20.5 times one-year forward earnings, making them relatively attractive.
Smallcaps and midcaps, by contrast, remain expensive by historical standards. Smallcaps trade at around 25.1 times forward earnings, well above their long-term average of 16.7 times, while midcaps are at 29.2 times compared with a historical norm of 23.1 times. Bhattacharya says that the worst froth has come off, but stresses that the segment is still not cheap, and investors should not mistake correction for value.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
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