Small-cap stocks could be positioned for a significant comeback as earnings growth accelerates after two largely flat years, according to Mirae Asset Mutual Fund's Varun Goel and market veteran Ajay Bagga. As reported by The Economic Times, Goel expects a robust recovery in FY27 and sees the strongest opportunities in capital goods, financials and healthcare sectors. The fund manager emphasized that small caps have historically delivered strong earnings rebounds once macro and sentiment-led headwinds ease, with FY27 expected to be a year of robust earnings growth for small-cap companies. Bagga's analysis reveals a clear split emerging in India Inc.'s earnings outlook, with banks, IT, defence and power-linked businesses positioned for meaningful upgrades, while consumer staples and two-wheelers could face pressure from weak rural demand.
The Mirae Asset Small Cap Fund has compounded at over 16% since inception versus under 9% for the index as of June 30th, according to The Economic Times. The fund maintains a portfolio turnover ratio of just 0.26 times as of June, reflecting its focus on long-term compounding stories rather than reacting to market swings. With close to 80 stocks in the portfolio, the fund is diversified enough to avoid constant reshuffling, with conviction bets given time to play out. Bagga's comments shift focus from broad-based market rebound to a more selective earnings-driven rally, with the next leg of market movement depending less on liquidity and more on where actual earnings upgrades materialise.
According to The Economic Times, the fund remains constructive on financials accounting for more than 22% of the portfolio when banks, finance and capital-market companies are combined. In industrial products and electrical equipment, which constitute nearly 19% of the portfolio, the fund continues to see strong opportunities in domestic manufacturing supported by the government's Make in India push. The fund is particularly positive on capital goods businesses tied to power transmission and generation, both thermal and renewable along with data-center-linked plays. Bagga's analysis specifically highlights banks, IT, defence and power stocks as likely leaders in FY27 earnings upgrades, while consumer staples and two-wheelers may remain under pressure due to uneven monsoon conditions constraining rural demand.
As reported by The Economic Times, Goel expressed caution on export-oriented businesses amid an uncertain global growth outlook. The fund maintains a low cash position of around 3% and remains substantially deployed, believing that small-cap compounding plays out over a 3-5 year horizon. Recent market developments show India VIX surging reflecting heightened volatility, with domestic equities declining due to broad-based selling across sectors. Foreign portfolio investors were net sellers, impacting market sentiment negatively, while the Indian rupee fell to a two-month low as oil prices climbed. Bagga's comments come as investors reassess sector leadership amid an improving earnings backdrop and a broader recovery in market sentiment, with the focus moving toward where actual earnings upgrades are materialising across different sectors.
