India smallcaps set for FY27 earnings rebound
A leading Indian fund manager forecasts a sharp earnings recovery for small-cap stocks in fiscal 2027 after two years of stagnation, signaling a potential shift in the broader equity cycle.
Indian small-cap stocks are poised for a strong earnings rebound in fiscal 2027, reversing two years of stagnation. Varun Goel of Mirae Asset Small Cap Fund said the recovery will likely drive the category's next phase of outperformance. The forecast comes after negligible returns in the small-cap benchmark caused valuations to moderate significantly.
The projected turnaround carries significant implications for portfolio allocation across Indian equities. If earnings materialize as expected, the current valuation reset could offer a compelling entry point before a broader re-rating occurs. Goel noted that sustained investor interest in the space historically follows long-term performance rather than short-term market sentiment.
Mirae Asset's strategy reflects this long-term conviction, with the fund sitting 97% invested and carrying a portfolio turnover ratio of just 0.26 times as of June. The fund holds close to 80 stocks, providing enough diversification to avoid constant reshuffling during volatile market swings. Since inception, this low-churn approach has compounded at over 16%, compared to under 9% for the benchmark index.
Goel is concentrating this deployed capital into three primary themes: capital goods, financials, and healthcare. Industrial products and electrical equipment make up nearly 19% of the portfolio, targeting power transmission, renewable and thermal generation, and data-center infrastructure. Financials account for over 22%, driven by a thesis that monetary easing will support the broader lending and capital-markets ecosystem.
Within the financial sector, the fund specifically favors brokerages, asset managers, depositories, and market infrastructure businesses. These entities are positioned to benefit structurally from the ongoing financialization of Indian household savings. Healthcare represents the third pillar, focusing on hospitals and diagnostics that are steadily gaining market share from unorganized care providers.
The fund manager is actively avoiding export-oriented small caps due to an uncertain global growth outlook. Furthermore, while the domestic capital expenditure theme remains a core holding, Goel acknowledged it is now widely owned across the market. This popularity requires stricter stock selection to ensure underlying earnings growth continues to justify current valuations.
"I believe that conviction bets should be given time to play out," Goel said. Position management remains strictly thesis-driven rather than sentiment-driven. He stated that positions are only exited if earnings visibility weakens, capital efficiency drops, or leverage creeps up meaningfully, with valuation stretch serving as a final trigger.
