Mid and smallcap mutual fund schemes in India have quadrupled their assets under management (AUM) to 10 trillion in five years, driven by strong investor inflows and market gains, with experts anticipating continued growth despite mixed valuations.
Indian mutual funds experienced a nearly 5 per cent growth in average quarterly assets under management (QAAUM) in the second quarter of FY27, reaching approximately ~87.2 trillion, despite significant equity market turbulence and corrections in largecap and some debt segments.
At a valuation of around Rs 10 trillion, Tata Sons would rank among India's 10 largest listed companies and could qualify for inclusion in key indices such as the Nifty 50, Sensex and the Nifty 100.
Smallcap funds topped the net inflow chart for the second consecutive month, as investors poured record Rs 7,973 crore into one of the best-performing MF categories.
Net SIP inflow is calculated by subtracting redemptions from gross SIP investments.
IT services stocks have had tough two years, with prices coming under pressure from 2025 and the sell-off extending through the first half of 2026.
Indian mutual fund holdings in overseas equity securities increased by 37.5 per cent year-on-year to approximately '93,602 crore by March-end, according to RBI data. This growth is attributed to mark-to-market gains from a global market rally and heightened investor interest, with the US remaining the primary destination for these investments.
August 2026 witnessed a significant surge in India's primary market, with 21 mainboard initial public offerings (IPOs) raising approximately 21,000 crore, marking the highest monthly deal count of the year, even as benchmark indices experienced declines.
Smallcap funds have emerged as the primary beneficiaries of the systematic investment plan (SIP) wave in Indian mutual funds over the past five years, with their SIP assets surging to approximately 1.83 trillion by March 2026, a fivefold increase.
HDFC Bank's share in active mutual fund schemes has fallen to multi-year lows, despite overall MF ownership in the bank rising, as the stock faces weak performance, soft margins, and governance concerns.
'India is vulnerable to the West Asia crisis in three ways: Energy costs, the business Indian companies conduct in the region, and remittances from the Indian diaspora.'
Foreign portfolio investors (FPIs) significantly increased their buying in Indian equities during the first half of August, with financial services attracting the largest inflows, reversing previous outflows. The IT sector also continued to see strong interest from overseas investors, driven by a reassessment of valuations and the role of Indian IT firms in AI deployment.
Smallcap and midcap funds now account for nearly 30% of active equity MF folios, as stock-market gains revive investor appetite for high-growth segments.
'A favourable base, last year's policy measures, the carryover impact of a good monsoon and improving earnings should all help.'
Net inflows into smallcap funds surged 39 per cent M-o-M to a record Rs 7,768 crore, while midcap fund inflows rose marginally to Rs 6,192 crore.
'Healthy double-digit returns are still possible, though a sharp rally is unlikely.'
The divergence between the Sensex and Nifty closing values narrowed on the third day of the Closing Auction Session (CAS) rollout, but market participants, including Zerodha's Nithin Kamath, highlight structural issues and the unfortunate timing of its introduction alongside new RBI norms.
The Nifty and Sensex outperformed Asian peers in South Korea, Japan, Taiwan and China.
Liquidity stress in smallcap funds has fallen to its lowest level since February 2024, with the average time to liquidate 50% of portfolios dropping to 27 days in June from a peak of 44.2 days in January 2026, driven by a sharp recovery in smallcap stocks and increased trading volumes.
'The market is currently neither cheap enough to be exciting about nor expensive enough to worry about.'
