India’s small‑cap stocks ended 2025 with a steep drop, while large caps posted solid gains. Here’s a plain‑language look at what five market experts expect for 2026 and how investors can navigate the risks.
2025 Recap for Small‑Cap Stocks
Small‑cap indexes fell about 7%, and the even smaller micro‑cap segment slipped roughly 19% during the year. Earnings growth and analyst revisions were weak, making broad index exposure risky.
Expert Views for 2026
Sunil Sharma – Ambit Global
- Large caps up ~11% YTD, driven by better earnings visibility.
- Midcaps still delivering modest 5‑6% gains after strong past performance.
- Small caps lagging; recommends selective, bottom‑up stock picking through experienced fund managers.
- Active management expected to beat passive strategies as stock dispersion widens.
V Srivatsa – UTI AMC
- Earnings outlook for mid‑ and small‑caps improving, but valuations stay high.
- Large caps likely to lead recovery because of lower valuation gaps and steadier earnings.
- Smaller stocks may bounce, but investors should focus on companies with strong balance sheets.
Nilesh Shah – Kotak Mahindra AMC
- Risk in small caps persists due to “froth” in some stocks.
- Many small‑cap firms have limited free float, making prices vulnerable.
- Caution advised; avoid over‑valued stocks.
Dinshaw Irani – Helios Mutual Fund
- Mid‑ and small‑cap segments becoming attractive again on a growth‑adjusted basis.
- Earnings downturn that began in Sep 2024 appears to have bottomed out.
- Selective opportunities emerging as earnings regain momentum.
Trideep Bhattacharya – Edelweiss AMC
- Large‑cap valuations near 10‑year average (≈20.5× forward earnings), making them relatively cheap.
- Small caps trade at ~25.1× forward earnings, above their long‑term average of 16.7×.
- Midcaps also pricey at ~29.2× versus a historic 23.1×.
- Correction has reduced froth but the segments are still not value buys.
Key Takeaways for Retail Investors
- Stay selective – focus on companies with clear earnings visibility.
- Consider active funds or managers who can navigate dispersion.
- Watch valuation gaps between large, mid, and small caps.
- Be aware of ownership concentration in many small‑cap stocks.
Remember, this is perspective, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.