MAKING THE MOST OF SMALL- AND MID-CAPS

SMALL- AND MID-CAP FUNDS ARE NOT FOR THE FAINT-HEARTED. FOR LONG-TERM INVESTORS, DISCIPLINE, DIVERSIFICATION, AND ALIGNMENT WITH FINANCIAL GOALS REMAIN FAR MORE EFFECTIVE THAN TRYING TO TIME THE MARKET

- BY ANAGH PAL

THE DARLINGS OF Dalal Street—small- and mid-cap funds—are now undergoing a reality check.

After two years of stellar gains, volatility has crept in, and the correction has eroded the short-term euphoria. However, history often suggests that those who ride the dips often create the most wealth over time.

EARLY ADVANTAGE

Experts say small- and mid-caps typically have lower institutional ownership, allowing fund managers to enter early before valuations catch up. “This helps ride the full growth curve as these companies mature into large caps, says Abhishek Tiwari, CEO, PGIM India Asset Management.

Take this into consideration. In June 2021, the 250th largest company had a market cap of ₹11,819 crore. As of June 2025, the figure stands at ₹30,756 crore, per AMFI categorisation. Similarly, in the mid-cap space, beyond the top 100 companies, the 101st company had a market share of ₹36,954 crore (June 2021). The 101st company is now at ₹90,907 crore market cap (June 2025).

With an active primary market, we are seeing a lot more companies entering this space. They operate in niche sectors or sunrise industries like fintech, recycling, waste management, renewables, defence, and digital services. They have agile business models that allow them to scale up rapidly.

Small caps offer higher upside potential by virtue of being less saturated than large caps. Mid- and small-cap segments have consistently demonstrated their potential for long-term wealth creation. “While these segments inherently carry higher volatility compared to large caps, they also offer differentiated growth opportunities that can significantly enhance portfolio outcomes over a 7- to 10-year horizon,” says Tiwari.

VOLATILITY TEST