Smallcaps get riskier and volatile, is it time for a pause? Top CIOs debate at the Mutual Fund Summit

India's smallcap shares now carry the risk of earnings downgrade this fiscal, while the midcap pool has become narrow with higher valuations limiting appeal, a panel of CIOs told Moneycontrol on June 23 during a panel discussion.

The Moneycontrol Mutual Fund Summit saw a vibrant chat among top money managers like Rahul Singh (CIO, Equities, Tata Mutual Fund), Anish Tawakley (Co-CIO, Equity, ICICI Prudential AMC), and Niket Shah (CIO, Motilal Oswal Mutual Fund) during a discussion themed ‘Smallcap stocks: Pause, or Party Abhi Baaki Hai?’

Tata MF’s Rahul Singh described the current pause in rally as ‘very, very healthy’, suggesting it could extend longer than the 18-month lull seen between November 2021 to March 2023, which preceded a 25 percent rebound in 2023-24. Rahul Singh contrasted small-caps’ wider investment scope with the midcap space that has a smaller stock pool and 15-20 percent higher valuations, thus limiting appeal. “Smallcaps offer more options but come with elevated risks and volatility,” he said, pointing to the BSE Smallcap’s 8 percent fall in April-June period as a sign of caution.

Niket Shah of Motilal Oswal Fund supported the growth narrative, highlighting 15-16 percent quarterly gains and a profit share rising from 13-14 percent to 27-28 percent, levels not seen since 2018, though he flagged liquidity pressure after RBI’s Rs 2 lakh crore infusion since April. Anish Tawakley of ICICI Pru took a critical view, “Promoters are the real beneficiaries, pushing stocks on retail,” citing the 2007-19 period when the Smallcap 50 index fell 30 percent and the Smallcap 100 gained just 1% over 12 years.