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.
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.
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.
'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.'
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.
Newly listed companies Vedanta Aluminium Metal, SBI Funds Management and Manipal Health Enterprises have entered the Rs 1 trillion mcap list since March 2026.
Largecap equities are less volatile than mid- and smallcap stocks, making them suitable for risk-averse investors.
If India does get $100 billion a year in FDI, it would be a game-changer in every possible way. FPIs would come rushing back, AI or no AI, points out Debashis Basu.
'... with the rest split between mid and smallcaps, as valuations are becoming more attractive across segments.'
Largecap equity funds remain suitable for conservative and moderate risk-taking investors seeking relatively stable returns.
New dematerialised (demat) account additions in India reached a six-month high in July, with 2.89 million new accounts opened, driven by a buoyant initial public offering (IPO) market and a broad-based rally in equities.
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.
"When you have more liquidity than good investment opportunities, there is no reason for MFs to sell a winning trade."
IT stocks had their worst first half fall in decades, with the Nifty IT index declining 31% in the January-June 2026 period, its biggest decline in the first six months of a calendar year since 2003.
'Value is not where you make money in India. It never has been.' 'You have to buy momentum.' 'Momentum is in technology, and I don't see that slowing down because I believe the AI infrastructure boom is going to last for a while.'
Investors now have 27 passive smallcap funds to choose from 17 index funds and 10 ETFs.
'A favourable base, last year's policy measures, the carryover impact of a good monsoon and improving earnings should all help.'
Most actively-managed equity mutual fund schemes outperformed their benchmarks despite volatility across domestic equity markets during the past year.
Analysts predict that the Reserve Bank of India's interest rate decision, the evolving situation in West Asia involving the US-Iran conflict, and crude oil prices will be the primary factors influencing investor sentiment in the Indian stock market this week.
Smallcap funds give investors access to businesses that can grow much faster than the broader economy.
Foreign investors have largely been exiting one part of the market while domestic investors have been enthusiastically accumulating another, points out Debashis Basu.
'The market is currently neither cheap enough to be exciting about nor expensive enough to worry about.'
'Midcaps and smallcaps are the 'go-to segments' for retail investors.'
Amidst a sharp run-up in gold and silver prices, investors are advised to rebalance their portfolios by booking partial profits in precious metals and reallocating to domestic equities and debt, according to financial experts.
Accenture's revised annual revenue growth forecast and weaker-than-expected fourth-quarter guidance have sent shockwaves through the Indian IT sector, causing major IT stocks and the Nifty IT index to tumble significantly.
Despite geopolitical tensions and FII outflows, Indian small and midcap stocks have not only recovered losses but are also outperforming largecap indices, driven by attractive valuations, domestic institutional support, and a rebound in earnings.
Life cycle funds may suit people who are starting their investing journey. They may suit those who do not want to monitor their investments frequently. Busy professionals, beginners and delegators, who lack the time, information or interest to manage asset allocation actively, may find these funds useful.
'As we navigate uncertain waters, a conservative approach to largecap investing could provide a strategic advantage.'
LAMF allows investors to access liquidity while staying invested.
Indian stock markets rallied in early trade after US President Donald Trump announced a halt to planned military strikes on Iran, citing requests from Gulf leaders and ongoing "very big discussions" that could lead to a deal. This de-escalation, coupled with foreign fund inflows and gains in IT and Adani group stocks, contributed to the positive market sentiment. Track Sensex and Nifty on May 19, 2026.
Indian IT stocks have seen a significant decline of up to 33 per cent year-to-date in 2026, largely due to artificial intelligence (AI) disrupting traditional outsourcing models, leading analysts to predict a challenging FY27 for the sector despite some cushion from rupee depreciation.
Passive funds tracking the National Stock Exchange Nifty Next 50 Index have seen their assets under management (AUM) more than double in the past year. The index's growing popularity can be attributed to its robust 50 per cent return over the same period. Currently, the AUM of funds tracking the Nifty Next 50 index stands at nearly Rs 30,000 crore.
Investors can begin investing in mutual funds with as little as Rs 100.
The majority of active largecap funds are set to outperform for the second year in a row in 2024, thanks to the strong performance of their midcap and smallcap allocations.
Flexicap fund performance depends heavily on the fund manager's decisions.
The market capitalisation (mcap) cutoff to qualify for mutual funds' (MFs') largecap universe is likely to go up for the fifth consecutive time to touch the Rs 1 trillion mark for the first time. A fresh list of largecap, midcap, and smallcap stocks is set to be released by the Association of Mutual Funds in India (Amfi) in the first week of January.
'In India's case, an extended earnings slowdown accompanied by rich valuations have dimmed returns since late 2024.'
Infosys shares experienced a significant drop, hitting a 52-week low, after the company announced its Q4FY26 results and provided a modest revenue growth guidance of 1.5-3.5 per cent in constant currency for FY27, falling below market expectations and raising concerns about AI-led deflation and margin pressures.
Net inflows into equity mutual fund schemes moderated in FY26, falling by 27 per cent to about 3 trillion till February, as choppy markets and global uncertainties prompted investors to shift towards safer options like hybrid funds and gold ETFs.
