Bottoms-up opportunities still high in smallcaps: Monarch AIF
Bottom-up investment opportunities remain attractive in quality smallcap companies over the next 12-24 months, supported by resilient corporate balance sheets, healthy domestic demand, improving cash flows and sustained capital expenditure intentions, according to Monarch AIF.
The firm remains constructive towards smallcaps despite the run-up in the segment. Since February, the Nifty 50 has declined over 11%, while the Nifty Small Cap 250 and Nifty Micro Cap 250 have delivered returns of roughly 11.7% and 22% respectively. “The result has been a substantial performance gap of nearly 23 percentage points in favour of smallcaps and over 33 percentage points in favour of microcaps relative to the headline index,” observes Abhisar Jain, Fund Manager, Monarch AIF.
Smallcaps supported by earnings growth and strong fundamentals
Corporate balance sheets remain in excellent shape, with FY26-end figures improving on FY25 levels. Healthy automobile sales, credit growth in the high teens and stronger-than-expected demand from consumer-facing businesses further reinforce the outlook for earnings growth across market capitalisations
“Low corporate leverage, improving cash flows and healthy capital expenditure intentions provide support to smallcaps. Policy initiatives aimed at developing sectors such as semiconductors, aerospace and renewable energy, alongside efforts to strengthen core industries including automotive and defence, could provide greater growth visibility and encourage further investment by India Inc, says Jain.
Select largecaps offer attractive value
While quality smallcaps continue to offer a compelling investment opportunity, the current market environment is also creating opportunities among select large-cap companies. Monarch AIF sees attractive value emerging in pockets of BFSI, insurance, telecom and parts of the IT sector, expanding the opportunity set for investors willing to look beyond broad market movements.
The emphasis remains on identifying individual businesses with strong balance sheets, durable growth prospects and sensible valuations, rather than relying solely on index-level performance, according to the Monarch AIF.
Smallcaps could deliver strongly in a 12-24 month investment horizon
Monarch AIF's outlook is based on a multi-year investment framework rather than short-term market movements. Quality smallcaps can deliver attractive investment outcomes over the next 12- 24 months, with returns increasingly driven by earnings growth and business fundamentals.
“Global macroeconomic uncertainties could continue to trigger periodic volatility. However, resilient corporate fundamentals and improving domestic growth conditions provide opportunities for active investors. Disciplined bottom-up stock selection, supported by patience and a focus on valuations, remains key to navigating the market environment,” concludes Jain.
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