Equity markets saw a sharp rally in 2024, hitting fresh highs in September. But, there has been a correction since, amid heavy selling by foreign institutional investors.
There have been concerns in the market around the slower GDP growth in the September quarter as well as lacklustre corporate earnings. US Federal Reserve signalling fewer interest rate cuts in 2025 and the continued fall in the rupee against the dollar, as well as uncertainties around the trade policies of incoming US President Donald Trump, has also added into the worries.
Several fund managers have been advising investors to choose large caps over small caps and midcaps. They point to the relative comfort on valuations of large caps over mid and small caps right now and the likelihood of large caps fairing better during volatile times over the next year.
However, in the current volatility, Mirae Asset Mutual Fund is set to launch a smallcap mutual fund in January. According to the new fund offer documents filed by Mirae earlier, the fund will allocate a minimum of 65 per cent in smallcap stocks. What is the rationale behind launching a small cap fund during such uncertain times?
Varun Goel, senior fund manager - equity, Mirae Asset Investment Managers (India) points that the smallcap indices (Nifty smallcap 100 and smallcap 250) have had a near 20-year track record, during which they have delivered an IRR (internal rate of return; annualised rate of return of an investment) of around 17 per cent, and there are few asset classes in the world that have delivered this kind of returns over such a long period.
"We believe that anybody who has a 4, 5, 10-year view, if you are doing wealth creation, if you are putting money aside for your children's education, for buying a house or for upgrading a business, a small cap makes a lot of sense," Goel opined.
He agrees that there are pockets of frothy valuations in the smallcap space. But, he still believes smallcaps must be part of an investor's portfolio from a long-term view, looking at India's growth story.
He also pointed that the smallcap space had evolved over time and had become much bigger in size from a market capitalisation perspective. Many of the smallcap companies are now established companies and there are several companies and or themes today that are only in the smallcap space, he added.
"Today if you want to invest in India's financial savings boom, whether it's exchanges or depositories or wealth management companies, they are largely present in the smallcap space. If you look at the whole capex story, if you look at the real estate sector, most of these fast-growing parts of the economy, most of these stories lie in the small and midcap space. A lot of these emerging sectors and themes you can find in abundance in the small cap space," according to Goel.
Mirae Asset has been one of only a few foreign mutual fund houses that have been successful in the country. It started in 2006 and its assets under management have now crossed a milestone of Rs 2 lakh crore. In the past two decades several foreign mutual funds exited India. Over the last five years, Mirae's assets under management have grown at a compounded annual rate of 54 per cent.
Mirae's chief investment officer Neelesh Surana too stressed on the need for investing in small and midcap space.
"Mid and smallcaps should be core, integral parts of portfolios," he said.
Despite the near-term volatility, Mirae remains positive on equities. However, Surana has this advise for investors.
"Keep the expectations low, about 10-15 per cent, keep time period of 3-5 years and invest through SIP (systematic investment plan)."
